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Critical in creating a road map for your business in the new year is recognizing the market conditions and trends that will influence residential housing in 2020. Tracking enables us to make adjustments in our marketing toolkit as necessary. Sharing that knowledge with our clients also helps them make better decisions when buying or selling a home. These are the factors to be mindful of in the year ahead:
Low Levels Of Residential Inventory
Demand for housing will be robust this year, with more millennials entering the market in their quest for a home. Baby boomers and Gen Xers have been staying in their homes longer, and new construction cannot keep up with the housing demand. Given those two factors, we should expect continued constraint on residential inventory. We may even see a new all-time low.
Mortgage Interest Rates
The cost of borrowing for a home continues to be a bargain, creating increased access for more buyers. The published Freddie Mac rate the week of this writing for a 30-year fixed mortgage is 3.65%. That is a point lower than the December average rate of 2018. The 2020 forecast from Freddie Mac for the average mortgage interest rate is 3.7%, while Fannie Mae predicts a 3.6% average.
The Economy
According to the Bureau of Labor, for the final quarter of 2019, job creation remained steady with unemployment for November at 3.5% and the most job growth in healthcare, technology and professional services. Year-over-year wage growth for 2019 was roughly 3.6% with predictions for 2020 at about 3.8%. The expectation for gross domestic product (GDP) growth in 2019 is 2.3%, and in 2020 it is predicted to be 2.1%. Recession talk for this year has diminished, with most economists now feeling it will be more likely in 2021. Consumer confidence, although still high, softened a bit in December. Moving into the new year, if economic growth meets expectations, confidence in the economy should remain stable.
The Silver Tsunami
Millions of baby boomers are now aging into their 60s and 70s and retiring at the rate of about 10,000 a day. The majority are empty nesters who will put the large family home on the market and buy smaller one-level homes, condos or townhouses. In many instances, they will be looking at the same properties as younger buyers, putting more pressure on inventory. Florida and Arizona, meccas for retiring boomers, will likely experience even greater competition for homes.
The Millennial Shift To The Suburbs
It’s an urban myth that all millennials want the hipster condo in the city within walking distance of coffee shops, bars and restaurants. The fact is the millennials are getting married, becoming parents and moving to the suburbs where the schools tend to be better and housing costs lower. Millennials are opting for the 1,800-square-foot home with a yard and a two-car garage. Instead of walking to the bistro, they are driving their kids to day care, school, soccer practice and the local shopping center.
Home Values
Expect home prices to rise in 2020, but not as much or as quickly as last year. Zillow predicts at the end of the year, the median home value in the U.S. will be 2.8% higher than in 2019. While tight supply at the lower end of the market will put more upward pressure on home prices, in the mid and upper ranges of the market, pricing will be softer. These slower rising values will be more sustainable and give wages a chance to catch up with the cost of homeownership.
Home Sales
Thanks in part to lower interest rates and wage growth, the outlook for residential real estate is optimistic. Home sales are estimated to reach 6.1 million in 2020, according to Freddie Mac, and the U.S. real estate market “remains on solid ground with housing starts, building permits, existing home sales, and new home sales all significantly outperforming consensus expectation” as of this past summer.
While the residential real estate market may not move as quickly as in the past few years, it will be stable and sustainable. Low interest rates and stabilizing prices will increase affordability. The result will be a more significant number of younger buyers becoming homeowners, the foundation of the American dream. I’ll raise a glass to that prediction.