What to expect from U.S. housing market 2020

What to Expect from the 2020 U.S. housing market

Housing Market Review: The U.S. housing market in 2020

It’s not only home buyers who are closely monitoring the housing market in the United States. Economists, investors, and analysts constantly look for developing trends in the U.S. housing market to assess the economy’s strength and predict the ability of the American economy to prosper without experiencing a recessionary period.

A thorough understanding of the dynamics behind the housing market enables all these parties to make more informed decisions, whether it be buying a home or investing in the equity of a real estate company. This analysis will discuss a few key developments to determine where the housing market is headed in 2020.

The continued growth of the American economy is a positive sign

The demand for new homes primarily depends on the ability of Americans to afford such houses, which is synonymous with disposable income in the country. The International Monetary Fund, the World Bank, and the Federal Reserve expect economic growth in the U.S. to slow down in 2020 and beyond compared to the last couple of years.

However, all these institutes unanimously agree that a recession is unlikely to hit the U.S. in the next couple of years and that economic growth will be positive.

The real GDP growth is expected to decline but remains close to 2% through 2022

Source: Federal Reserve Bank of St. Louis

The disposable personal income in the U.S. has increased steadily in the last six years, which is another positive sign for the housing industry, as demand for new homes tends to correlate positively with the level of personal income.

Disposable personal income in the United States

Source: Statista

Slow and steady economic growth should boost the housing market in 2020. The unemployment rate in the U.S. is near record lows at present (3.6%), which is an indication that most households in the country are benefiting from the economic growth post-financial crisis of 2008.

Interest rates will likely remain low, another positive sign

Mortgage rates are also a vital determinant of the demand for new homes, as the availability of financing for homebuyers can and will have a massive impact on the decision of Americans to buy or rent new properties. In line with geopolitical pressures that hindered the ability of the U.S. economy to grow in the first half of 2019, the Federal Open Market Committee (FOMC) decided to cut the Fed funds rate three times in the last year, bringing down the cost of borrowing significantly.

It’s important to note that these rate cuts came after four rate hikes in 2018, leading investors to believe higher rates would push home buyers to the sidelines.

Interest rate hikes/cuts in 2018 and 2019

Source: The Federal Reserve

In the latest monetary policy meeting that concluded on December 11, the Fed chair confirmed that policy rates would likely be stable in 2020 with no planned cuts or hikes. The below excerpt from the statement issued by the FOMC in December demonstrates this.

“The Committee judges that the current stance of monetary policy is appropriate to support the sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective.”

This is a good result for the housing market in the United States as rates are already low and a period with no rate hikes, but economic growth will likely result in higher demand for new homes.

This can be verified by the below chart that depicts the negative correlation between mortgage applications and the 30-year mortgage rate in the United States.

Source: YCharts

Mortgage originations will likely rise in 2020, providing a necessary boost for the housing market to thrive.

The rising house prices – a reason to worry

While the demand for houses will likely remain vital for most of 2020, the rising costs of purchasing a new home might fend off some buyers, as in the last couple of years.

The S&P/Case-Shiller U.S. National Home Price Index is at an all-time high, suggesting that home prices have continued to advance exponentially from the lows seen during the financial crisis.

Source: Federal Reserve Bank of St. Louis

This price increase has led homebuyers and investors to question whether the housing market is headed toward another bubble, as it happened a decade ago. Still, the Chief Economist at Euler Hermes North America, Dan North believes otherwise.

“Houses, in general, are overvalued but not to a great degree, and certainly not as much as before the housing bubble peaked in 2005.”

Dan has assigned a very low probability for a housing market crash in 2020 and predicts that the strong fundamentals behind the industry, such as a growing economy, low unemployment, and low interest rates, will also drive the market forward in this new year.

Supply is tight, more gains for home sellers in 2020

One of the reasons behind the exponential appreciation of home prices in the last decade is the tightening of supply while demand continued to grow. This phenomenon will most likely remain a feature of the U.S. housing market in 2020 as well, leading to further home price increases.

As the chart below shows, existing home sales declined sharply in 2018 and remained flat despite a recovery in early 2019. Considering that demand is still high, this statistic suggests that homebuyers fail to find properties matching their requirements and budget.

U.S. existing home sales

Source: Trading Economics

Due to this development, real estate companies specializing in this segment might find 2020 a challenging year.

George Ratiu, a senior economist at Realtor.com, believes that sellers should remain patient but think twice about the pricing of their homes to attract more buyers. Despite these headwinds, he believes 2020 will be a strong year for the U.S. housing market.

“Housing remains a solid foundation for the U.S. economy going into 2020. 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.”  

Millennials will be at the center of the industry’s growth

In the same way as many other industries and business sectors, millennials will likely be the driver of the housing market in the U.S. for at least another decade. According to a recent report by Realtor.com, the savings pool of millennials is at a record high, and their down payments for properties are larger than ever.

This suggests that realtors would better target millennials to sell or rent properties than any other generation.

In addition, the digital-friendly characteristic of millennials might result in companies spending millions of dollars on online advertisements and marketing campaigns to get the attention of homebuyers.


The cards are stacked in favor of another year in which the housing market of the U.S. will prosper despite the threat posed by increasing house prices. Mat Ishbia, CEO of United Wholesale Mortgage, agrees and believes that 2020 is a great year to buy properties.

“From a homebuyer perspective, affordability is great. The Spring purchase season in 2020 will likely have a lot of legs and could carry on through the Fall.”

Considering the market dynamics driving the industry, homebuyers and sellers would have ample opportunities to thrive in this new year. However, it would be best to continue to pay attention to macro-economic developments to spot adverse actions.