Team Rita’s 2020 Housing Market Predictions

The economy. Millennials. Housing inventory. Mortgage rates. Bidding wars. Climate change. Recession. There is plenty on the horizon for the housing market in the first year of the new decade—including lots of good news for buyers and sellers. Thinking of buying or selling in the next year or two? Team Rita is here with our 2020 housing market predictions to gear you up for your next real estate venture.

Home values will increase.

We expect home values to rise by 2.8% in 2020—and continue rising over the next couple of years—with low risk for downturn across most housing markets. Buying activity will surge alongside competitive mortgage rates, hovering around 3.8% for a 30-year fixed loan. Anticipate a more exciting market if you plan to buy or sell a home.

If you sell before 2022, you could turn a nice profit. However, with many buyers priced out of the current market, don’t expect an immediate influx of offers. Our advice for sellers is to be aware of your competition, make your home stand out, and work with a real estate agent to list your home for the right price. Sellers have the upper hand for negotiating in the new year—so it pays to wait for the right offer.

If you plan to buy, start with a good idea of what you can afford in 2020’s expensive market. Crunch the numbers to figure out a comfortable monthly payment. We recommend a 15-year fixed-rate conventional loan with a down payment of 10% or more.

Mortgage rates will fall to record lows.

For the real estate industry, 2019 marked the year of persistently and unexpectedly declining mortgage rates. (As of December, the average interest rate for a 30-year fixed-rate mortgage was 3.99%.) Mortgage rates could fall as low as 3.6% in 2020—the lowest annual average ever recorded in Freddie Mac records dating back to 1973. (The current record was set in 2016 at 3.65%.)

Despite our relatively strong economy—indicated by increased wage growth and a 50-year low for unemployment—lower mortgage rates are never a guarantee. If tariffs or the trade war shift the economy, for example, the Federal Reserve will slowly increase interest rates to balance things out.

However, there’s a good chance the Federal Reserve will cut—rather than increase—interest rates in 2020. Even with our global economic growth projected to reach its lowest since the Great Recession, we expect the 2020 housing market to remain strong.

Sellers can expect motivated buyers hoping to close sooner rather than later. If mortgage rates do creep up down the road—and buyers hesitate—houses may linger on the market. A real estate agent can help you set expectations.

Even with low interest rates, we advise buyers to select a conventional fixed-rate mortgage—unless you’re buying with cash—so that you can lock in affordable payments over the life of the loan.

Bidding wars will rebound as competition soars.

Unexpectedly low mortgage rates created a surge of refinances and home purchases in 2019. We anticipate an even more competitive housing market in 2020 as the cooldown that began in the second half of 2018 comes to an end.

Although low mortgage rates do strengthen homebuying demand, expect fewer homes on the market than in the past five years. With more homeowners staying put for longer, we expect sellers to sit 2020 out, causing residential property inventory to (almost) evaporate.

However, more demand and less supply also mean bidding wars, which is good news for sellers holding out for the market to stabilize. More competition and faster price growth could also tempt homeowners and builders to list and build more homes. We predict one in four offers will face bidding wars in 2020—up from one in ten in 2019.

More competition could push year-over-year price growth up 6% in first half of 2020—a staggering increase compared to the 2% growth in the first half of 2019. Later in the year, we expect more balance between supply and demand, driving a more moderate price growth of 3%.

Homebuilders will keep focusing on starter homes.

Homebuilders emerging from the Great Recession—when the number of young people buying homes reached record lows—spent little time and money building starter homes, chasing instead the real money in building custom homes for well-to-do upper and upper-middle class buyers. Fast-forward to 2020—and the younger crowd is buying (or at least wants to buy) again.

The surge in young buyers is a boon for homebuilders specializing in entry-level properties. As businesses in our reasonably solid economy demand highly skilled and highly educated workers, millennials—the group that turned ages 23 to 38 in 2019—meet the qualifications.

We expect the younger crowd—who are now getting married, starting families, owning homes, chasing the American dream, and eschewing inner-city living in favor of 1,800 square-foot suburban homes—to be a driving force behind the 2020 housing market.

Even among thin inventories, millennials will surpass 50% of all home purchase mortgages, qualifying for more homes with near-record low interest and mortgage rates and a flattened home price growth rate of less than 1%. The group will surpass baby boomers and gen-Xers, making larger down payments than ever before.

Food for thought: The shortage of starter homes across the country happened when builders focused on newly constructed, upper-tier housing costing at least $500,000, which were mostly snatched up by real estate investors with all-cash offers. However, expect more companies to invest capital into starter home communities as millennials fuel the 2020 housing market. The National Association of REALTORS expects 10.6 percent more multifamily and single-family housing starts in 2020 while Realtor.com forecasts a 6 percent increase in single-family starts.

Our advice for sellers is to know your buyer. Expect internet savvy millennials to research the web before visiting houses. Upgrade your online listing with high quality photos—and even a digital tour of your home—to make a strong (virtual) first impression. Highlight perks like the neighborhood and school quality rather than features like square footage. And know what millennials want—starting with a laundry room, hardwood front exterior, patio, garage storage, and walk-in pantry.

Our advice for buyers is to gear up for plenty of competition for a three-bedroom, single-family home nestled in the suburbs. Reprioritize your must-haves to stay flexible and hire a real estate agent to save you the stress of buying on your own. (Fun fact: in 2019, nearly 90% of millennial home buyers used a real estate agent to purchase a home.)

Climate change will become a bigger financial factor for buyers and sellers.

2020 marks an interesting time in history—the first decade where climate change will factor into home-buying decisions.

We are already starting to see the financial costs of climate change—including rising fire and flood insurance premiums. With buyers and sellers growing hyper-sensitive to the costs—and fearing more historic floods over the next decade—expect higher insurance premiums in high-risk areas, making houses less affordable to more people.

In the highest-risk areas, insurers may stop insurance altogether, making it nearly impossible for some buyers to secure a mortgage.

The housing market will survive the recession (if one happens).

Throughout 2018 and 2019, we heard talk of a U.S. recession in 2020. The consensus at the NAR Forecast Summit predicted no recession at best, and a 29 percent chance at worst. (Zillow forecasted no recession whatsoever thanks to increased spending, a heartening labor market, and promising wages.) However, faced with economic slowdown (if it happens), the 2020 housing market will weather the storm.

Unlike past recessions, the modern real estate market features an extremely low inventory of homes. Expect the price of entry-level homes to grow faster than incomes in 2020, putting some first-time homebuyers in tough spot, especially as builders lag in constructing enough affordable homes.

On the plus side, low housing inventory and high mortgage quality will (likely) limit the severity of a future recession. If tariffs and trade wars don’t cause a dramatic ripple effect, the economy should stay in good shape with people landing more job opportunities and spending more money.

Buy or sell a home with Team Rita on your side.

Ready to buy or sell a home in 2020? Our real estate agents are here to help with expert advice, practical knowledge, and real-world experience from both sides of the real estate transaction. Become a client and discover the reason Team Rita ranks as the #1 RE/MAX Team on Long Island.