We’re in the midst of the longest economic expansion in U.S. history, and economists think there’s still room to grow. According to a survey by the National Association for Business Economics, experts believe the U.S. economy will remain positive throughout 2020. 1
Still, given that recessions are a natural (and necessary) part of a business cycle, we know this period of growth will inevitably end. This leaves many people wondering, “How will an eventual recession impact the real estate market?”
Many Americans assume a recession would lead to a decline in housing prices like we saw during the Great Recession of 2008. However, that real estate market crash we experienced wasn’t typical. In fact, the last recession wasn’t typical at all. It was the worst economic downturn since the Great Depression of the 1930s.
ATTOM Data Solutions analyzed real estate prices during the last five recessions and found that, in the majority of cases, home prices actually went up. Only twice (in 1990 and 2008) did prices decline, and in 1990 it was by less than one percent.2
So what can historical precedent—combined with today’s data—tell us about the future of real estate? Here’s where experts predict the housing market is headed in 2020 and beyond.
HOME PRICES WILL KEEP RISING
Economists predict U.S. housing prices will continue to rise, regardless of a recession. In fact, property data firm CoreLogic forecasts a faster rate of growth for home prices in 2020 than we saw in 2019, with the biggest gains at the lower end of the market.3
Arch MI Chief Economist Ralph DeFranco expects entry-level home prices to increase faster than incomes this year, making it even more difficult for many first-time buyers to afford to enter the market.4
“Low interest rates and a shortage of starter homes will continue to push up prices,” predicts DeFranco. “This is especially the case for lower price points, since builders have tended to focus on more expensive, higher-profit houses and less on replenishing low inventories of entry-level homes.”4
“Real estate is on firm ground with little chance of price declines,” said National Association of Realtors Chief Economist Lawrence Yun. "However, in order for the market to be healthier, more supply is needed to assure home prices as well as rents do not consistently outgrow income gains.”5
What does it mean for you? Don’t be scared! If you have the ability to buy now, don’t let a looming recession stop you. If rents and home prices continue to rise as anticipated, you will be better off for buying now
INVENTORY CONSTRAINTS WILL CONTINUE
According to Redfin, Americans are staying in their homes longer. In 2019, the average homeowner had resided in their home for 13 years, up from just eight years in 2010. That means there are fewer homes available today for those who want to buy.6
It’s possible that an increase in new construction could offer some relief. The National Association of Realtors (NAR) expects single-family housing starts to total one million this year, the highest level since 2007. And NAR Chief Economist Lawrence Yun predicts the average price of new construction will decline slightly as builders shift to building smaller, more affordable homes.7
However, these efforts may not be enough to meet current demand. “Despite improvements to new construction and short waves of sellers, next year will once again fail to bring a solution to the inventory shortage,” predicts George Ratiu, Senior Economist at Realtor.com, “In 2020, we expect inventory to struggle to grow and could instead reach a historic low level.”8
What does it mean for you? Expect competition to be fierce for starter homes. If you are working to a deadline (like a new baby), build in plenty of time to find the right home. Of course, I’m available to help you assess your options, including help you navigate new construction options.
MORTGAGE RATES WILL REMAIN LOW
Mortgage rates have declined more than a full percentage point since November 2018, when they hit a recent peak of 4.94%.9 The Mortgage Bankers Association predicts rates will remain low, at around 3.7%, through mid-2021.10
Lower mortgage rates make homeownership more accessible and affordable for buyers.
While it may not seem significant, on a $200,000 30-year fixed-rate mortgage, that lower rate means buyers could save around $145 on their monthly payment and more than $52,000 over the life of their mortgage.
Although economists expect mortgage rates to stay low, they caution against waiting to act. Economic factors, shifts in supply and demand, or unforeseen impacts of the November election could cause rates to rise unexpectedly. “We recommend borrowers with long-term plans of staying in their homes to lock in a low rate now because there’s no telling how long these low rates will last,” warns Preetam Purohit, a capital markets trader at Embrace Home Loans.11
What does it mean for you? Acting now could save you on your monthly payment if you can lock in at these historically low rates. If you are planning on staying in your current home, you might consider if refinancing is good option for you.
MILLENNIALS WILL DRIVE THE MARKET
Millennials are expected to account for more than half of all mortgages this year, outnumbering Generation X and Baby Boomers combined. It’s not surprising, considering their age and stage of life. In 2020, the largest cohort of millennials will turn 30, and the oldest millennials will turn 39.8
Family changes tend to drive home-buying decisions," explains Realtor.com Chief Economist Danielle Hale. "Millennials are going to be active in the housing market not just because they're just at the age when they're thinking about becoming first-time home buyers, but they're also in the age range when they're having kids."12
Younger millennials flocked to urban centers that offered easy access to work, shopping, and restaurants. But high prices, lack of square footage, and subpar schools are driving millennials out to the suburbs as they begin to marry and expand their families.
What does it mean for you? If you’re a millennial who is looking for more space, Sahuarita and Green Valley offer great options for getting out of the city. If you are looking to sell, give me a call. I know how to market your home to millennials and can help you get top dollar by appealing to this market.
I’M HERE TO HELP
While national real estate numbers can provide a “big picture” outlook, real estate is local. As a local market expert, I can guide you through the ins and outs of our market and the issues most likely to impact sales and home values in your particular neighborhood.
If you’re considering buying or selling a home in 2020, contact me now to schedule a free consultation. I’ll work with you to develop an action plan to meet your real estate goals this year.
START PREPARING TODAY
If you plan to BUY this year:
1. Get pre-approved for a mortgage. If you plan to finance part of your home purchase, getting pre-approved for a mortgage will give you a jump-start on the paperwork and provide an advantage over other buyers in a competitive market. The added bonus: you will find out how much you can afford to borrow and budget accordingly.
2. Create your wish list. How many bedrooms and bathrooms do you need? What’s most important to you in a home? We can set up a customized search that meets your criteria to help you find the perfect home for you.
3. Come to our office. The buying process can be tricky. We’d love to guide you through it. We can help you find a home that fits your needs and budget, all at no cost to you. Give us a call to schedule an appointment today!
If you plan to SELL this year:
1. Call us for a FREE Comparative Market Analysis. A CMA not only gives you the current market value of your home, it will also show how your home compares to others in the area. This will help us determine which repairs and upgrades may be required to get top dollar for your property, and it will help us price your home correctly once you’re ready to list.
2. Get your home market ready. Most buyers want a home they can move into right away, without having to make extensive repairs and upgrades. We can help you determine which ones are worth the time and expense to deliver maximum results.
3. Start decluttering. Help your buyers see themselves in your home by packing up personal items and things you don’t use regularly and storing them in an attic or storage locker. This will make your home appear larger, make it easier to stage and get you one step closer to moving when the time comes!
1. NBC News - https://www.nbcnews.com/business/economy/what-impending-recession-new-survey-shows-most-people-think-they-n1098511
2. Curbed - https://www.curbed.com/2019/1/10/18139601/recession-impact-housing-market-interest-rates
3. HousingWire - https://www.housingwire.com/articles/corelogic-expects-home-prices-to-do-this-in-the-next-12-months/
4. Forbes - https://www.forbes.com/sites/alyyale/2019/11/15/2020-housing-outlook-expert-predictions-for-mortgage-rates-home-prices-tech-and-more/#343ea4522935
5. National Association of Realtors - https://www.nar.realtor/newsroom/expect-continued-economic-growth-slower-real-estate-price-gains-and-small-chance-for-recession-in
6. Redfin - https://www.redfin.com/blog/homeowners-staying-in-their-homes-longer/
7. HousingWire - https://www.housingwire.com/articles/builders-are-coming-to-the-housing-markets-rescue/
8. Realtor.com - https://www.realtor.com/research/2020-national-housing-forecast/
9. YCharts - https://ycharts.com/indicators/30_year_mortgage_rate
10. MBA Mortgage Market Forecast November 2019 - https://www.mba.org/news-research-and-resources/research-and-economics/forecasts-and-commentary
11. Dallas Morning News - https://www.dallasnews.com/sponsored/real-estate/2019/11/23/experts-predict-where-mortgage-interest-rates-land-in-2020/
12. Realtor.com - https://www.realtor.com/news/trends/biggest-changes-coming-in-2020-real-estate-and-tips-for-buyers-and-sellers/