What to Expect from the Housing Market in 2020
The new year has begun, and the 2020 housing predictions are in! Although recession rumors persisted throughout 2019, the economy does not appear to be slowing down drastically. Despite a slow summer for consumers, spending has picked back up since October. Additionally, the consumer confidence index and consumer sentiment index continue to post record high numbers. The job market is strong, the unemployment rate is historically low, and employers continue to add jobs at a steady pace.
Real estate researchers at Zillow released their list of what to expect from the housing market this year. Here are some of the highlights:
Builders will build smaller.
After years of skewing toward larger, luxury homes, builders will start to build smaller to satisfy the need for more starter homes. In 2018, the median size of a newly built single-family home was 2,386 square feet, down slightly from 2015’s median size of 2,467 square feet. Home buyers of all ages are buying smaller because they are more affordable, more eco-friendly, require less maintenance, and are often located in denser areas, closer to walkable amenities.,
Many first-time home buyers are seeking smaller, starter homes, and competing over a limited number of existing starter homes for sale. Homeowners are occupying their homes longer, leading to an inventory crunch. Smaller homes are also more affordable for first-time home buyers’ budgets, especially those struggling to save for a down payment. Even some seasoned home buyers are seeking smaller homes as they transition into retirement. In 2019, 56% of newly built homes were purchased by home buyers who were 40 and older.
Home values will appreciate more slowly.
Data from the Case-Shiller home price index and the FHFA house price index both show that home price appreciation has slowed down across the country. This trend is expected to continue into 2020 and will also impact rental rates. Annual rental rate appreciation stood at about 2.3% in June 2019.
Slower rent growth means renters who have been struggling to save for a down payment may get some relief. Zillow researchers expect annual rental rate growth to dip below 2% in 2020. Plus, slower home price appreciation means buying a home may be more affordable.
Mortgage rates will stay low.
In December, the Federal Open Market Committee voted to leave the federal benchmark interest rate unchanged and released its dot plot or predictions for the upcoming years. Based on the data, no rate hikes are expected in 2020 and one rate hike is currently projected in 2021.
Lower mortgage rates for the next few years mean buyers have an opportunity to lock in lower monthly mortgage payments.
Home sales will continue to climb.
Since the Financial Crisis of 2009-2010, overall home sales have slowly recovered. In late 2014, existing home sales finally surpassed an annual rate of 5 million. In 2016, existing home sales topped an annual rate of 5.5 million before edging back to 5 million in 2018. Despite the volatility, home sales are expected to climb in 2020.
Despite limited housing inventory, low mortgage rates and sustainable home price appreciation will prove to be favorable conditions for home buyers.
We’re looking forward to the new year and all the new opportunities for home buyers and homeowners. If you have any mortgage questions, please let me know!