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Housing Market Predictions For 2020

Kevin GrahamDecember 30, 2019

Whether you’re looking to buy or sell your home in 2020, it helps to have some sense for where things are going in the housing market. While no one can see the future, we’ve done our best to uncover the available data and information from analysts to give you a better idea of what to expect. It’s certainly a better reading than you would get from tarot cards.

Let’s not belabor the preamble any longer. What’s coming in 2020?

Interest Rates Should Remain Pretty Low

There are a couple of reasons mortgage rates are expected to remain low in 2020. One of these is based on policy and the other has everything to do with market forces.

As part of its mandate to control inflation, the Federal Reserve controls short-term interest rates. These rates affect the cost for banks to borrow money overnight. Although this seems like a bit of a stretch, there’s a defined trickle-down effect between these short-term rates and longer-term rates for things like cars and even mortgages. As one goes up, so does the other and vice versa.

The Federal Reserve has shown in projections that they expect not to change short-term interest rates at all in 2020, barring significant economic changes.

If you combine these projections with some things that are going on in the geopolitical landscape, there’s a reason to believe low rates may continue. In 2019, the trade war between the U.S. and China was a rather big deal. While there is now a tentative deal between the two countries on at least phase 1 of a broader agreement, there’s still plenty of details to be worked out. Implementation hasn’t all been figured out.

Another key market mover in 2019 were the happenings around Brexit. That’s something to continue to keep an eye on this year because they still have to figure out how travel between countries will happen as well as how trade works between Britain and the member states.

Situations like those we’re seeing in China and Britain create a certain amount of uncertainty within traders on the market. When there is uncertainty, money gets pulled out of stocks and put into bonds that have a guaranteed return. They want to balance the risk associated with stocks. Even though equities have a higher theoretical upside, they also get hurt more in a market fall.

Mortgage rates have a direct relationship with bond yields. If more people are buying bonds because there’s more perceived volatility in the market, yields on bonds go down because they don’t have to provide as high a return, and mortgage rates go down. When more money is flowing into stocks, yields on bonds go up along with mortgage rates.

The trade war and Brexit are still creating a certain amount of volatility and help keep rates low. They act as a catalyst for volatility and it keeps people from being totally bullish on the stock market, which keeps money in bonds.

Prices Will Rise, But Not So Quickly

Home prices are expected to go up, but increases won’t match the pace we’ve seen over the last several years. When the latest data covering October was released in early December by S&P and CoreLogic, they projected that home prices would increase 5.4% through October 2020. This is a decrease from the prediction in September. There are other signs that home price growth is coming to a more natural level that’s not as boom and bust.

In 38 of 50 states, home price growth has slowed compared to October 2018. One of the biggest states seeing a slowdown was Nevada, where home prices were going up 11.9% on an annual basis in October 2018, compared to 3.2% at the same time the next year.

Housing Inventory Will Improve, If Modestly

One of the things that’s held the housing market back from gangbusters growth in 2019 is a lack of available housing inventory for all the buyers who are looking to buy houses. There simply haven’t been enough houses on the market to go around. It’s been the main factor in why prices have been driven so high over the last couple of years.

The coming year could see that trend change, or at least the beginnings of a shift in tides. There are a couple of reasons for this.

Home builders are seeing the demand for starter housing and starting to increase their output. Fannie Mae expects single-family housing starts to be about 10% after being up just 1% this past year. This single-family number is a key metric because most Americans buy this type of housing. While it’s still well below the heights of 1.7 million single-family starts seen before the recession in 2005, it’s the highest number of starts since the recession began. In addition, builders are encouraged by a low interest rate environment that’s increasing buying power among those looking at homes.

Of course, the biggest growth in home buying interest is coming from millennials looking to buy their first home. New construction is more expensive than existing homes. Here, inventory is anemic. Relative to the current pace of sales, inventory is only at 3.7 months. It’s definitely a seller’s market for existing homes. For context, a market is considered in balance when there’s 6 months’ worth of inventory available.

Part of the reason for this low inventory is that baby boomers and Gen Xers have chosen to stay in their homes and age in place. According to the National Association of REALTORS®, average tenure within homes is now at 10 years. Historically, people have remained in their homes for 6 or 7 years.

What Will Houses Look Like In 2020?

If more houses are going to be built, what kind of houses can we expect to show up on the market? We would be remiss if we didn’t touch on this before wrapping up our analysis.

The homes of the near future are likely to be smaller because millennials entering the market are looking for starter homes. These aren’t as likely to be their forever homes. In addition, those baby boomers who are looking to move will likely want to downsize in many cases. In addition, home buyers want homes that are located in more densely populated areas within walking distance of various amenities. Homes tend to be smaller in these areas given population density. There is also evidence that cities have become less conducive to having cars, so that means building more homes within walking distance of major attractions and public transport.

There’s also an increased focus on sustainability in a couple of ways. Builders are listening to homeowners and building in smart tech (which makes it easier to control energy use when you’re not home) as well as using more eco-friendly materials.

The National Association of Home Builders did a survey of the growing millennial market. The top requested features included a laundry room, hardwood and a patio or other outdoor entertaining space. Expect these preferences to be taken into account when it comes to new construction.

Now that you know what to expect from the housing market headed into 2020, if you’re looking to buy or sell, connect with a Rocket Homes Real Estate LLC (“Rocket HomesSM”) real estate agent.

If you’re looking for a mortgage approval, get started today with Rocket Mortgage® by Quicken Loans®.1

1Quicken Loans® and Rocket Homes Real Estate LLC are separate operating subsidiaries of Rock Holdings Inc. Each company is a separate legal entity operated and managed through its own management and governance structure as required by its state of incorporation, and applicable legal and regulatory requirements.

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    Kevin Graham

    Kevin Graham is a Senior Blog Writer for Rocket Companies. He specializes in economics, mortgage qualification and personal finance topics. As someone with cerebral palsy spastic quadriplegia that requires the use of a wheelchair, he also takes on articles around modifying your home for physical challenges and smart home tech. Kevin has a BA in Journalism from Oakland University. Prior to joining Rocket Companies, he freelanced for various newspapers in the Metro Detroit area.