Despite some recession scares predicted for 2020, we are in a lengthy healthy economy and many experts don't see things slowing down anytime soon. It is believed that the real estate market will continue growing in the coming year.
With that good forecast for 2020, we will see a recession at some point, and you might wonder how this will affect the real estate market when it occurs. In the Great Recession of 2008, prices plummeted, but that hasn't always happened with prior recessions. Most believe that prices dropped so drastically because they were highly inflated to begin with. Income was not keeping up with the housing market and I knew it couldn't get much higher.
In our past 5 recessions, during three of them, home prices actually increased according to ATTOM Data Solutions. Prices only decreased two times, in 1990 (less than 1%) and 2008. So what will the real estate market look like in the future?
Real Estate Prices Will Continue to Increase
It is predicted that no matter if there is a recession or not, prices of home will keep going up. CoreLogic, a real estate data company, is forecasting higher prices in 2020 vs 2019, although the highest increases will be more noticeable in lower price ranges. This will result in fewer first-time homebuyers being able to afford to buy
Because builders are constructing higher-end homes in order to make the best profits, the first-time buyer starter homes will continue increasing in value. It is basic supply and demand. Since builders aren't building low-end homes, there will continue to be more competition, pushing prices up, which creates a domino effect.
Lawrence Yun, who is the National Association of REALTORS Chief Economist, states that “Real estate is on firm ground with little chance of price declines." He also points out that we need more inventory to stablize prices, and it all starts with the lower priced inventory.
If you're on the fence about buying a home in the future, you should consider moving ahead since prices and rents will continue getting higher.
Inventory Will Continue to be Low
As a Realtor since 1983, it used to be a mantra that people lived in their homes for an average of 7 years. That has changed! In 2019, the average homeowner had resided in their home for 13 years, up from just eight years in 2010. With a lack of new construction, there are simply not enough homes to keep the buying cycle affordable, especially for first-time buyers.
Although that sounds terrible for homeownership, the National Association of Realtors (NAR) expects housing starts to be around a million in 2020, which is the highest amount of new construction since 2007. Some builders are actually shifting into more affordable homes and I think those that do will see quick sell-outs of their subdivisions. The truth is that these builders won't reap the high profits that they would see if they built higher-end properties.
For the small number of builders that will build more affordable housing, it still won't be enough to meet the demand of buyers that can only qualify to purchase lower-end homes. So although prices will continue to rise, inventory might actually be lower.
If you're a first-time buyer you will most likely be up against other first-timers and will be involved in multiple offer situations, which we've seen for a while now.
What Will Happen to Mortgage Rates?
The Mortgage Bankers Association predicts rates will remain low, at around 3.7%, through mid-2021. That might not sound like such a big deal, but with a mortgage of $200,000, for example, that can be a savings of about $145.00 a month! That adds up to $52,000 over the 30-year span of the mortgage. Low mortgage rates open up the doors for first-time buyers.
No one knows how long rates will remain low, so if you're thinking of buying a place, you shouldn't wait. Depending on what happens during the economy and the election in November, rates can rise quickly. If you need to sell your current residence first and already have a low rate, you want to get another low rate for your next purchase.
Millennials Will Be the Driving Force in 2020 Real Estate
Millennials will have more than half of all mortgages in the coming year. They will actually outnumber Generation X and Baby Boomers combined! It makes sense because they will be in their 30's, where many families can finally afford to purchase a home and are ready to put down roots and have families.
When a generation starts getting older, they are more willing to leave the big cities to raise their kids back in the suburbs. They are now considering giving up that urban lifestyle they enjoyed when they were in their 20's. They're getting to an age where they're ready to settle down.
If you're a Millennial who has enjoyed living in the city but now need more space to grow a family, you can usually get more for your money in the suburbs.
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If you’re considering buying or selling a home in 2020, contact us now to schedule an appointment. Give us a call at 708-536-8200.