2019 was an interesting year 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 important 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 being attracted to a certain 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
Mortgages 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 into 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 given area is critical to understand the value of homes and their 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. There are several factors 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. With a lack of increasing home prices, this could promote homeowners to sit out in 2020 if they thought about selling.
Within the same article however, they cite millennial’s will enter the market with force. If you couple an aggressive buying sector with a lack of inventory, this 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 of a premium could end up back firing should the market contract and your home lose value.
Location, location, location!
The final trend to consider are millennial home buyers – while making up most of the market, are looking to move outside major cities to afford their desired living arrangements. Coined “hispterbia”, these suburbs outside major cities such as Chicago are going to continue attracting home buyers.
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. Keep in mind this forecast may not apply for those in smaller metro areas that lack attractions such as jobs or lifestyle amenities.
Other things to keep in mind for 2020 include the push for a completely 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 simply avoided home buying due to the paperwork.
With an election year upon us, it feels that the overall economy and market may be quiet while our current and potential presidential candidates fight for votes. Should the economy turn negative prior to voting in November, it’s likely to spell bad news for our current President.
As mentioned, mortgages 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.