2020 will be an exciting year for the U.S. housing market, thanks to rate decreases by the Fed and mortgages remaining at or near all-time lows. The affordability of borrowing continues to motivate refinancing to these lower rates. With some level of stability forecast for 2020, it’s essential to understand what may occur in the United States housing market.
The impacts on housing are vast due to the different requirements in home buying. These include income, job location, and businesses attracted to a particular marketplace.
Understanding these different factors will give you a better understanding of how the market may react in the upcoming year.
Low Mortgage Rates Continue for the U.S. Housing Market
Mortgage rates have been at historic lows and remain near historic lows today. Many experts are predicting this will be the case in 2020. The Fed continued to cut rates until the end of 2019, pushing mortgage rates lower.
Lower rates benefit the consumer because they are more motivated on two fronts. First, they are likely to tap into the equity in their home for renovations or personal purchases. However, this could negatively affect the marketplace because people are less likely to sell their homes.
On the other side, buyers are more likely to remain active with rates roughly 3.5% to 4% for a 30-year fixed. Keeping an eye on supply and demand in your area is critical to understanding homes’ value and projections.
Watching the Fed’s decisions on rates will dictate where the mortgage rates head towards, and for 2020, they seem to remain at current or potentially lower levels.
Increased competition across major metro housing markets
2020 may be a competitive market for home buying. Several factors are at play, with the first being flattening home prices. According to an article by The Street, they cite Realtor.com stating home prices will increase roughly 0.8% nationwide. A lack of growing home prices could encourage homeowners to sit out in 2020 if they think about selling.
However, the same article cites millennials who will enter the market with force. Coupling an aggressive buying sector with a lack of inventory could lead to bidding wars and a premium paid on homes, depending on the market.
Competition in any market is healthy, but if there is a below-average supply of homes, it could discourage people from entering the buy side of the market. The idea is to be careful when entering the market and research comparable homes. Also, paying too much premium could backfire should the market contract and your home lose value.
Location, location, location!
The final trend to consider is millennial home buyers – while making up most of the market, are looking to move outside significant cities to afford their desired living arrangements.
Coined “hispterbia”, these suburbs outside major cities such as Chicago are going to continue attracting home buyers.
According to The Denver Post, millennials represent 23.7% of Colorado’s population.
This is an example of how large of a force this generation is and will be for the next year and beyond. With suburbs being the target for home buying, look for those prices to be more competitive, depending on location.
(Remember, this forecast may not apply to smaller metro areas lacking attractions such as jobs or lifestyle amenities.)
Other things to remember for 2020 include the push for an utterly digitized lending process. Online lending continues to expand as millennial shoppers become more technologically savvy.
This also expedites an otherwise detailed process that can take weeks, depending on the situation. Having an online process may motivate some individuals who avoid home buying due to the paperwork.
With an election year upon us, the overall economy and market may be quiet while our current and potential presidential candidates fight for votes. Should the economy turn negative before voting in November, it’s likely to spell bad news for our current President.
As mentioned, mortgage rates will likely remain low, motivating people to buy or refinance their homes. Competition is expected to increase as home prices marginally increase, and supply may begin to tighten.
Lastly, suburbs outside major metro areas may reap the benefits of millennial home buyers looking to escape expensive cities.