Al's December 2019 Market Watch

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Real Estate

December, 2019

2020 Real Estate Outlook

(Credit: Forbes 11/2019; Expert Predictions For Mortgage Rates, Prices And More; Aly Yale)

     The 2019 housing market saw low rates, high buyer demand and limited supply. What will 2020 bring? Experts weigh in and make predictions on what to expect next year.

    Mortgage Rates Will Stay Low:  And Possibly Go Lower:  Mortgage rates are currently hovering around 3.75 percent according to Freddie Mac’s most recent numbers. That is nearly a 1 percent difference from a year ago. This drop in rates caused a surge in refinancing over the last few months, as well as an uptick in purchases.

    According to Odeta Kushi, deputy chief economist at First American, there is “emerging consensus” that rates will remain low next year, somewhere between 3.7 and 3.9 percent.

    Forecasts from Freddie Mac and the Mortgage Bankers Association are both predicting rates within this range. Fannie Mae believes rates will come in even lower, around the 3.5 to 3.6 percent for the year.

    This is obviously positive news, keeping the refinancing ball rolling and the housing stock more affordable to more home buyers.

    Prices Will Keep On Rising:  Home prices will continue their climb upward, according to experts, largely due to tight inventory and high demand.

    According to the latest home price forecast from property data firm CoreLogic, on a national level, home prices should tick up by 5.6 percent by next September, up from the 3.5 percent jump this year.

    As Daryl Fairweather, chief economist for real estate brokerage Redfin, explains “Right now we aren’t seeing a ton of new listings. Without more listings coming on the market there will be more competition starting off in early 2020 and that will lead to more price pressure.

    The problem will be worse on the lower end of the price spectrum. According to Ralph DeFranco, chief economist for mortgage insurer Arch MI, “Low interest rates and a shortage of starter homes will continue to push up prices.” He expects that entry-level home prices will rise higher than incomes next year.

    And it appears that prices will continue to rise beyond 2020. Data from Arch MI shows that the chance of home price declines is only a mere 11 percent for the next two years. They also state that there are currently no states or metro markets projected to see price declines in that period.

    Inventory Will Be Tight:  Housing inventory is going to remain limited for much of 2020, experts say. And low interest rates and record-high home ownership tenures are a big part of the problem.

    According to recent data from Redfin, the average homeowner is staying in their home 13 years, up from eight years in 2010. In some areas, home ownership tenures areas high as 23 years.

    As Odeta Kushi explains, “You can’t buy what’s not for sale.”

    “While historically low rates increase buying power and make it more likely for potential buyer to attain their home ownership dream, they also increase the risk of a long-run housing supply shortage, which we predict will continue through 2020 and possibly intensify,” Kushi says. “As first time buyers lock-in these historically amazing rates and existing owners refinance, in droves in recent months, everyone will stay put and not sell. Where’s the incentive?”

    New construction may offer some relief: The Census Bureau saw building permits and housing starts increase over the year. And builder confidence was at a 20 month high, according to the National Association of Home Builders.

    But it may not be enough to meet the needs of today's buyers, Kushi says. She adds, “Building pace still lags behind historical standards, and it will likely take months before we can begin building at a pace that will support demand.”

    Millennials Will Keep Up Their Home Buying Streak:  While Boomers Hold Up Inventory:  Data from shows Millennials mad up a whopping 46 percent of all mortgage originations in September, 2019 - up from 43 percent one year prior. At the same time, shares of Baby Boomer and Gen X mortgage activity declined.

    Millennials rank home ownership as one of their top goals in life, higher than even marrying or having kids. And with interest rates low and incomes up, it is the right time to buy a home for many.

    Unfortunately, they face an uphill battle. As Kushi explains, “Looking ahead, Millennials may be entering a tougher housing market in 2020. A limited supply environment combined with growing demand and increased competition for homes, is accelerating home price growth once again.”

    The Baby Boomer generation is part of the challenge for this younger cohort, as many are choosing to age in place, keeping more homes off the market than ever before. In fact, a recent study from Freddie Mac shows that if today’s older adults - those born between 1931 and 1959 - behaved like earlier generations, then an additional 1.6 million homes would have hit the market by the end of the last year.

    As Kushi explains, “The fate of Millennial home buying to close out 2019 and into 2020 will depend on two factors: if there is anything for them to buy, and whether rising purchasing power stemming from increasing income and historically low mortgage rates can continue to outpace house price appreciation.”

    The Suburbs Will Be A Big Draw Thanks To Millennial Demand:  As home prices skyrocket, cash-strapped Millennials are looking toward more affordable places to put down roots - namely smaller, suburban towns on the outskirts of major metros.

    The trend has led to an uptick in “Hipsturbia” communities - live-work-play neighborhoods that blend the safety and affordability of the suburbs with the transit (trains, buses, highways), walkability and the amenities of big cities.

   Melissa Gomez, an agent in New York has seen the trend in action. “Being based in New York City, I see Hipsturbia happening every day. As cities like New York become increasingly expensive, younger people and families are looking for more bang for their buck with real estate, schooling and everything in between. And slowly but surely, it is breathing new life into small towns outside of major suburban hubs.”

    The Urban Land Institute recently named Hipsturbia as one of its top real estate trends to watch in 2020. As their report explains, “If the live-work-play formula could revive inner cities a quarter century ago, there is no reason to think that it will not work in suburbs with the right bones and the will to succeed.”

    So What?  I guess the question to be answered now, is so what?  For a seller, this is all positive. Low mortgage rates keep housing affordable even with rising prices. And with inventory lean, prices will be pushed by buyers competing for limited available homes. At the beginning of December Bridgewater had a 2.23 months supply of homes, Branchburg 2.56 and Hillsborough 2.61. all indicting a very tight supply.

    For buyers, the message is mixed. Low mortgage rates with rising incomes, keeps housing affordable (ratio of housing cost to income levels) even though limited supply will push pricing up. But competition for available housing will be brisk, with many disappointed buyers losing to multiple offers.

    Al Fross is a Coldwell Banker Residential Brokerage Sales Associate based in the Bedminster/Bridgewater office. Al has lived in the Bradley Gardens section of Bridgewater since 1993 and has been an active volunteer in many recreational and community organizations including serving as a current member of Bridgewater’s Board of Adjustment and as past Chairman of the Township’s Planning Board. His knowledge of the Bridgewater and surrounding areas makes him the perfect “partner” when selling your existing property or buying your new home.