SANTA CLARA, Calif., Dec. 4, 2019 /PRNewswire/ — At a time when millennials are reaching key life milestones, the U.S. housing market will continue to slow in 2020 as inventory reaches historic lows and economic uncertainty prompts consumers to pull back on their spending, according to the realtor.com® 2020 housing forecast released today.
The forecast predicts that despite some relief from new construction, moderating home prices and relatively low interest rates, first-time buyers will continue to struggle with affordability. Sellers will contend with flattening price growth and slowing activity. These trends will drive existing home sales down 1.8 percent to 5.23 million.
Highlights of the realtor.com® 2020 forecast include:
- Home prices will flatten, increasing just 0.8 percent nationwide. Prices will decline in more than 25 percent of the 100 largest metros, including Chicago, Dallas, Las Vegas, Miami and San Francisco.
- Inventory shortages will prevail and could reach historic lows, especially the entry-level category.
- Mortgage rates will remain reasonable, averaging 3.85 percent throughout the year.
- Affordability will remain a key driver for buyers, benefitting mid-sized markets.
- Millennials – with the oldest members approaching 40 and the biggest cohort turning 30 in 2020 – will surpass 50 percent of all home purchase mortgages.
- With little incentive to sell, baby boomers will continue to hold onto their homes, while Gen X is more likely to upsize, freeing up some entry level inventory.
“Housing remains a solid foundation for the U.S. economy going into 2020,” said George Ratiu, senior economist at realtor.com®. “Although economic output is expected to soften – influenced by clouds of uncertainty in the global outlook, business investment and trade – real estate fundamentals remain entangled in a lattice of continuing demand, tight supply and disciplined financial underwriting. Accordingly, 2020 will prove to be the most challenging year for buyers, not because of what they can afford, but rather what they can find.”
What will 2020 be like for buyers?
Buying a home in 2020 will be a mixed bag. It will offer more opportunities for some as the supply of new homes begins to offset inventory pressure that has built over the last four years, interest rates remain reasonable and home prices flatten. The broad price moderation will continue to make mid-sized markets in the Midwest and South attractive. However, the construction of new homes in 2019 was largely isolated to upper-tier of housing and that is unlikely to ease conditions for first-time homebuyers. Additionally, while qualifying for a mortgage could be easier on paper due to stabilizing prices and a still relatively low rate environment, the total number of homes available for sale will hit a record low.
What will 2020 be like for sellers?
Sellers in 2020 will grapple with dormant price growth and slowing activity, which will require a greater level of patience and a thoughtful approach to pricing. Entry-level home sellers can expect steady competition for their homes, which will keep prices firm. Upper-tier housing is expected to be softer as properties will likely sit on the market longer, requiring greater incentives to close deals. As the market moves toward a more balanced scenario, sellers who adjust to local market conditions can expect to benefit from continuing demand.
Forecasted key 2020 housing trends
- Millennials expand their domination of the market – Demand from those born between 1981-1997 will reach new highs in 2020 with millennials accounting for more than 50 percent of all mortgages by the spring. Several factors are at play here. In 2020, the largest cohort of millennials – 4.8 million of them – will turn 30, a time when many purchase their first home, while the oldest members of the generation will reach 39, often a point when many look to move from the city to the suburbs for family-friendly amenities. The largest generation in history will consolidate their top spot in mortgage originations and effectively outnumber Gen X and baby boomers combined in their share of purchases.
- Growing economic uncertainty – Although a recession isn’t likely in 2020, the economy will show signs of softening. The pullback in business spending is expected to lead to a slowdown in consumer spending. Housing remains the largest single consumer expense, making home-buying activity a major contributor to the U.S. economy and a bellwether for economic expectations. Rising uncertainty about the economic outlook will dampen consumer enthusiasm about spending, leading to a decline in sales and an increase in homeowners’ tenure.
- Low inventory – Despite increases in new construction, next year will once again fail to bring a solution to the inventory shortage that has plagued the housing market since 2015. Inventory could reach a historic low as a steady flow of demand, especially for entry level homes, and declining seller sentiment combine to keep a lid on sales transactions. With housing prices expected to stabilize and concern over economic uncertainty, there will be little incentive for baby boomers to sell in the coming year. The younger Gen X is more likely to upsize and free up entry level homes, but not fast enough to ease inventory woes.
- Affordability brings secondary markets to the center stage – As buyers are priced out of suburban environments near large metropolitan areas, they will begin searching for family-friendly lifestyles in other metros or across state lines. Cities in Arizona, Nevada and Texas will continue to benefit from shoppers looking for more affordable alternatives to California. Meanwhile, home seekers from expensive Northeast markets will find the warmer options in the Carolinas, Georgia and Florida attractive. Midwest markets will become more attractive, as buyers will find the affordable housing and solid, diversified economies of Ohio, Indiana and Kansas compelling.
- Election will be 2020 wild card – Along with the presidential election, there will be candidates running for 35 of the 100 seats in the U.S. Senate, along with 435 seats in the House of Representatives. The 2020 elections will be closely watched by consumers and businesses for indications of potential changes. Although the outcome of the presidential election is not directly tied to the performance of the housing market, business optimism and investments, along with consumer confidence and spending do influence economic output, and can also influence housing activity. Looking at housing trends over the past three decades, the pace of sales, price and inventory are intertwined with economic performance – employment, wages, and interest rates.
Realtor.com® 2020 Housing Market Forecast
Up to 3.88% by year end
Existing Home Median Price Appreciation
Existing Home Sales
Single-Family Home Housing Starts
Sale and Price Forecast for 100 Largest Markets
The National Association of REALTORS®’ 2019 Profile of Home Buyers and Sellers highlighted the growing trend among the higher number of unmarried buyers shopping for a home. While most people who buy together still wait for marriage, unmarried buyers make up a growing share of the market, 9% compared to 8% a year ago. Married buyers made up 61% of the market. That’s down from 73% in 1981, the NAR survey shows.
© Pew Research Centers
Over the last few decades, marriage rates have been declining: 53% of U.S. adults age 18 and older are married, which is down from 58% in 1995. Meanwhile, cohabitation rates have been rising. Among people ages 18 to 44, a larger share have cohabited at some point than have been married (59% vs. 50%), according to the Pew study. A majority of cohabiters across demographic groups have only lived with one partner.
The Pew Research Center says the Great Recession may have contributed to the increase in unwed couples who live together.
“We know from studies we have done and that others have done that many people are forgoing marriage for economic reasons, and we do see that here, with many cohabitants saying they are not far enough along in their career to get married yet,” Juliana Horowitz, co-author of the Pew Research Center Report, told The New York Times.
Surveys show that the majority of every age group now finds it acceptable to live with an unmarried partner, a notable shift in attitude from the past. Sixty-nine percent of Americans said it’s acceptable to live with a romantic partner even if you have no plans to get married, according to the survey of more than 9,800 Americans.
FHA Loan Limits Raised
The CALIFORNIA ASSOCIATION OF REALTORS® today issued the following statement in response to the Federal Housing Finance Agency’s (FHFA) announcement to increase the 2020 conforming loan limits for mortgages acquired by Fannie Mae and Freddie Mac to $510,400 on one-unit properties and a cap of $765,600 in high-cost areas. The previous loan limits were $484,350 and $726,525, respectively.
“C.A.R. commends the FHFA for increasing the 2020 loan limits for loans insured by Fannie Mae and Freddie Mac. The new loan limits recognize California’s and the nation’s rising home prices and will ensure more home buyers have access to safe and affordable mortgages,” said C.A.R. President Jeanne Radsick. “These increases keep the cost of borrowing manageable for many California home buyers and will help improve housing affordability across the state. We hope the FHFA will continue to look for ways to increase homeownership opportunities across all housing markets, including high-cost areas.”