2020 real estate outlook

The 2020 real estate market is expected to continue its recent robust pace, as low mortgage rates and a strong job market should sustain the real estate market throughout the year.

The National Association of Realtors estimates that new-home sales will increase 750,000 in 2020, an 11% rise. Supply will hurt existing home sales, and the organization is predicting a 4% increase to around 5.6 million homes. The national median sale price of an existing home is expected to grow to $270,400, an increase of 4.3% from 2019.

“In 2020, more home-building activity and consequent growth in supply should tame down home price gains,” said Lawrence Yun, NAR chief economist in a media interview. “That’s a healthy development for potential home buyers. Southern cities should once again do better than most other markets.”

Continued low mortgage rate

Many industry experts predicted that interest rates would increase in 2019 and end the year above 5% for a 30-year fixed rate mortgage. Early in the year, it appeared that would happen, but the Federal Reserve decreased interest rates three times last year. Mortgage rates followed the downward movement of the Fed rate and are now below 4% for a 30-year fixed rate mortgage.

Economists are predicting that mortgage rates will remain low in 2020. The challenge, they say, is predicting the economy throughout the year. A potentially turbulent election year, the longest economic cycle in modern times and a trade war all make the future uncertain.

“Interest rates will, on average, remain lower for longer given the somewhat cloudy economic outlook,” said Mike Fratantoni, Mortgage Bankers Association chief economist. “These lower rates will in turn support both purchase and refinance origination volume in 2020.”

The 30-year fixed-mortgage is predicted to hover around 4% most of the year. It’s unclear if the Federal Reserve will continue rate cuts, but most economists are not predicting major changes in monetary policy.  

“In 2020, low mortgage rates and the improving economy will be the major drivers of the housing market with steady increases in home sales, construction, and home prices,” said Sam Khater, Freddie Mac chief economist.

Housing starts expected to rebound

Home construction over the last decade was the lowest in years. Between 1980 and 2000, the United States averaged approximately 40 million new homes every decade. That number dropped to just over 20 million over the last decade. The decline was partially due to the recession but also construction costs and increased regulations.

The trend is expected to reverse. The National Association of Home Builders is predicting around 700,000 new homes will be built in 2020. That is an increase of 2.5% over 2019.  The trend is due to changing demographics and the short supply of homes on the market.

“There is little doubt that the next generation will experience more single-family construction than the 2010s, as Gen X reaches its peak earning years and millennials increasingly seek out single-family homes for purchase,” NAHB Chief Economist Robert Dietz said.

Secondary markets to see growth

The move to affordability will be one of the biggest trends in 2020. Many of the large urban areas like Washington, D.C. are no longer affordable. People are choosing to move to areas they can afford. That has made the mid-sized cities hot real estate market. In 2019, Boise, Idaho — population 750,000 — was the hottest real estate market in the country, and markets like Richmond, Va. and Raleigh, N.C. are some of fastest growing real estate markets in the country.

With tele-commuting, buyers can live anywhere in the country, and many are choosing to live outside the large metropolitan areas. At the same time, millennials are starting a family and choosing to raise them outside the major metro areas.

The Richmond region was a hot real estate market in 2019, and the trend is expected to continue to 2020. The city saw significant growth, but so did the neighboring counties of Henrico and Chesterfield counties, partially due to affordability. Homes in Richmond were nearly 10% more expensive than the two counties. These areas have open land, and many new communities have sprung up outside the city. At the same time, inventory in the city is tight, as the number of homes on the market declined in 2019.

“Houses under $250,000 aren’t spending any time on the market,” said Laura Lafayette, CEO of the Richmond Realtors Association in a media interview. “There is so little first-time homebuyer inventory. That’s where we’re seeing many examples of multiple offers.”

Challenges

The main challenges for the housing market are the risk of a recession and the trade war. Some economists were worried about a recession in late 2019, but the decrease in interest rates and a rising stock market have alleviated those fears. Now, the outlook is less clear, as some of the trade war concerns seem to have been alleviated and the economy had healthy growth at the end of 2019.