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What Does 2020 Hold for the U.S. Housing Market?

by Cristina Oprean
5 min. read

Last year’s U.S. housing market trends included housing inventory that remained low, hot markets that showed no signs of cooling down and a drop in interest rates.

Now, there are plenty of questions surrounding what 2020 holds for the housing market, including whether new inventory will be available, if home sales will remain plateaued and whether Millennials will shift from renting to owning.

Based on a variety of data from multiple sources, these five factors will likely influence the housing market this year.

New Construction Will Increase

In December 2019, the National Association of Home Builders reported the highest level of home builder confidence in 20 years. Moreover, in November 2019, data from the Mortgage Bankers Association showed that mortgage applications to buy newly-constructed homes had increased 27% annually. This information, coupled with a shortage of existing homes for sale, means that potential buyers are considering new construction more so than they did before.

In addition, Fannie Mae economists expect new housing starts to be at their highest since 2007. According to Fannie Mae’s Economic and Strategic Research Group, builders are likely to increase production by 10% this year, with more than 1 million new single-family homes expected to be built in 2021. While that number would be below the record high of about 1.7 million single-family homes constructed in 2005, it would also be a marked increase since the 2008 recession.

More Millennials Will Buy

While the younger generation is often seen as preferring to rent rather than own, a Chase Home Lending study showed that 70% of the Millennials surveyed said they would be willing to spend less on leisure activities so they could save to buy a home.

Many Millennials are held back from homeownership due to a lack of housing inventory in some of the country’s hottest markets. For instance, in cities like Austin, TX; Raleigh, NC; and Nashville, TN; job growth has created a higher demand for housing, leaving limited options for homes priced less than $300,000. Although young buyers in these cities have job security and high enough incomes that should allow them to purchase a home, there aren’t enough housing options in their price range, forcing many to wait.

However, new inventory of luxury apartments in some cities has been driving up the median rent price and making the cost of homeownership not much different than renting. For example, the price of buying property in Dallas, TX; real estate in Phoenix, AZ; and homes in Atlanta, GA, is about equal to that of the high-end apartment rentals that are now flooding these markets. This is likely to increase in 2020 and further influence Millennial housing decisions.

Gentrification Will Continue

In the urban areas of the country’s fastest-growing cities, socioeconomic and demographic changes will continue to occur. In particular, The New York Times reports that wealthier home buyers are more frequently attracted to urban neighborhoods, making it more difficult for middle-class homebuyers to purchase property in the same areas.

On the flip side, some forms of gentrification – such as in cities like Philadelphia, PA; Atlanta, GA; and Washington, D.C. – have created positive change in communities that were once struggling, according to city planners.

More Baby Boomers Will Be Selling

Baby Boomers are expected to sell around 27% of homes in the U.S. between now and 2040, and several thousand of these homes will be coming onto the market in 2020, according to a study recently published by Zillow. As a growing population of aging Baby Boomers looks for newer, lower-maintenance and accessible housing, the existing homes they put up for sale should help alleviate the current inventory problem.

Dubbed the “Silver Tsunami,” this influx of existing homes being sold by Baby Boomers is likely to be most noticeable in retirement hotspots like Orlando, Miami and Tampa in Florida, and Tucson, AZ, as well as areas where the younger population has declined somewhat, such as Dayton and Cleveland, OH; Pittsburgh, PA; and Knoxville, TN.

Conversely, cities with increasing populations of younger people – such as Dallas, Houston, and Austin, TX, as well as Atlanta, GA – are less likely to be influenced by the Silver Tsunami.

Home Prices Will Continue to Climb

As of October 2019, there was a 3.3% year-over-year increase in U.S. residential real estate prices, and data suggests that prices will continue to climb in 2020, according to the S&P CoreLogic Case-Shiller Home Price Indices.

As noted by Craig Lazerra, managing director and global head of index investment strategy at S&P Dow Jones:

“If people were waiting to see if house prices would actually decline, as they did in [the Great Recession] … that’s probably not going to happen, at least given the current economic backdrop.”

Last year, some cities – like Phoenix, AZ; Tampa, FL; and Charlotte, NC – saw price increases of more than 4.8% year-over-year, marking some of the biggest gains in home prices in the country. What’s more, sunbelt states and Texas cities will likely see large gains again this year. But, even in the hottest markets, there is little to no chance of double-digit, year-over-year price increases.

With record lows in unemployment and consumers feeling positive about the market and economy in general, the U.S. housing market should remain stable in 2020 – a prediction that has been echoed by many builders, economists, and lenders across the country.

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