The US is in the middle of one of the longest economic expansions in its history, and experts think there is still room to grow. In fact, a recent survey by the National Association for Business Economics found that experts believe the U.S. economy will remain positive throughout 20/20.
Despite what the experts believe, we know that recessions are a natural and necessary part of any business cycle. So the question is, when will this period of growth end and how will an eventual recession impact the real estate market?
It is easy to assume that a recession would lead to a decline in housing prices like everyone remembers in 2008. But what happened in 2008 was not typical at all. What happened in 2008 was the worst economic downturn since the Great Depression of the 1930s. The fact that most of us only remember what happened in 2008 and had to live through it makes for a lot of concern. Truth is, in the last five recessions real estate prices actually went up the majority of the time. Outside of 2008, real estate prices declined only once in 1990 which was only by less than one percent.
So what does this mean to you? How do we combine historical information with today's data in order to have a clear 20/20 Vision? Here's where experts predict the housing market is headed in 20/20 and beyond.
PRICES OF HOMES WILL CONTINUE TO RISE
Regardless of a recession or not, experts believe home prices will continue to trend upwards. 20/20 will have a faster rate of growth compared to 2019, especially in lower entry level homes of the market. In fact, entry-level home prices are expected to increase faster than incomes this year, making it even harder for first-time home buyers to enter the market.
Builders continue to focus on expensive, higher profit homes and less on entry-level homes. With the continued shortage of starter homes and low mortgage interest rates, home prices will continue to be pushed upwards. And unless the housing supply is addressed, home prices and rents will continue to outgrow income gains.
What does it mean for you? If you have the ability and desire to buy a home now, don’t let a fear of recession or falling prices hold you in limbo. Economists expect home values, as well as rent prices, to continue rising. So you’ll likely pay more the longer you wait.
LOW INVENTORY WILL CONTINUE
People are staying in their homes longer. In 2019, the average homeowner had stayed 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.
The National Association of Realtors expects new construction of entry-level homes to total one million this year, which would be the highest level since 2007. Builders shifting to building smaller more affordable homes could offer some relief but experts predict inventory shortage will continue to grow and maybe even reach a historic low.
What does it mean for you? If you’re looking to buy a starter home, be prepared to compete for the best listings. Start your search early, and if you’re up against a deadline (like a new baby), build in plenty of time to find the right home. We can help you assess your options, including new construction and up-and-coming developments.
LOW MORTGAGE RATES WILL REMAIN
Mortgage rates have declined more than a full percentage point since November 2018 and experts predict rates to continue to remain low at around 3.7%, through mid-2021.
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. Lower mortgage rates make homeownership more accessible and affordable for buyers.
Although mortgage rates are expected to stay low, you still need to act now. Economic factors, shifts in supply and demand, or unforeseen impacts of the November election could cause rates to rise unexpectedly. If you plan on staying in your home long term make sure you lock in those low rates now.
What does it mean for you? If you’re looking to buy a home, act soon to lock in a historically low mortgage rate. It will minimize your monthly payment and could save you a bundle over the long term. And if you plan to stay in your current home for a while, consider whether it makes sense to refinance your mortgage at today’s lower rates.
MILLENNIALS ARE IN THE DRIVERS SEAT
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. 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.
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.
In response, a new model for suburban living has emerged. “Hipsturbias,” or mixed-use communities that bring the live/work/play concept to the suburbs, were recently named one of the top real estate trends for 2020.
What does it mean for you? If you’re a millennial who has been priced out of urban living or is looking for more space for your growing family, a number of suburbs in our area have a lot to offer. We can point you towards the communities that will best meet your needs. And if you’re a homeowner with plans to sell, give us a call. We know how to market your home to millennials … and can help you sell quickly for top dollar by appealing to this leading market segment!
WE’RE HERE TO GUIDE YOU
While national real estate numbers can provide a “big picture” outlook, real estate is local. As local market experts, we 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 us now to schedule a free consultation. We’ll work with you to develop an action plan to meet your real estate goals this year.
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