Forecast: Year of Housing Market Ups and Downs
What happens when pent-up demand meets a pandemic? Realtor economist predicts a hot late summer RE market, a fall slowdown and another hot market in spring 2021.
It’s hard to predict what will happen in the real estate market if you can’t predict what will happen with the COVID-19 pandemic, but realtor Chief Economist Danielle Hale revised her 2020 predictions this week.
At the heart of her estimate is that the pandemic will recede slowly this summer followed by a rebound in the fall, and the pent-up buyer demand will drive the market forward during those times when COVID-19’s spread has slowed.
HOUSING MARKET SHOWS SIGNS OF A THAW
Strong buyer demand hasn’t faded. The 2020 real estate market will be shaped like the letter “W”, with clearly defined high and low points. The updated forecast predicts an uptick in transactions during the third quarter driven largely by millennials, but 2020 total home sales will be down 15% year-to-year.
The forecast also expects home prices to flatten nationally as demand shifts to the secondary markets that offer buyers more affordability and space. Rebounding in July, August and September as fears of the coronavirus taper off and buyers return to the market to make up for the lost spring homebuying season. Sales will then dip again in the final months of the year as virus infections spike and the lingering impact of high unemployment rates are felt.
“The U.S. housing market started 2020 with substantial momentum, “With some of the best home sales and housing starts in more than a decade, our biggest challenge going into the spring home-buying season was a lack of for sale homes.”
The pandemic has, thus far, maintained the balance between buyers and sellers – though with fewer of both – and that has preserved market values.
“As cities and states begin the slow process of reopening, we’re going to see a see-saw recovery with ups and downs that will favor the nation’s secondary markets in the short-term. After experiencing life under quarantine, many buyers are searching for affordability and greater space, which is driving demand out of the nation’s largest metros and into surrounding smaller towns.”
The updated forecast projects mortgage rates to drop to new lows below 3% by the end of the year, primarily driven by an accommodating Fed and tepid economic outlook. While rates will be favorable, however, lenders’ qualifying criteria will be tougher than normal as they try to mitigate their own risks amid unfolding economic uncertainty.
Predictions are that home prices will flatten, increasing just 1.1% for the calendar year – but the inventory of for-sale homes will remain tight, and buyers will have trouble finding available homes for sale. However, homebuyers should have less competition from all-cash investment buyers than they did during the 2008 recession where they dominated the market.
Sellers will face their own array of 2020 challenge, a well-priced home would normally generate multiple offers, but that may not be the case this year. Sellers who need to sell a current home in order to move up or downsize will find the dual process especially difficult compared to prior years.
5 factors that will drive the rest of the 2020 real estate market:
Baby boomers – Many boomers have held onto properties longer than expected, and they may decide to postpone a home sale even longer until things return to normal – a move that will further constrict the number of homes for sale.
Millennials – Millennials will continue to be the market’s dominant buying force. Because their home purchases are less discretionary, their share of the market will continue to grow. Predictions are that millennials will make up 50% of home purchases in 2020, but this number could grow if older generations decide to step back from the market.
Secondary markets – Secondary markets throughout the U.S. with resilient jobs markets could see greater than normal demand as buyers continue to search for affordability and additional space. As these markets heat up, we also expect to see a change to the mix of homes available for sale nationwide. As the mix of homes for sales shifts, we could see the national listing price decline to reflect the change towards more affordable homes.
Election – The 2020 presidential election will be a wild card. Historically, economic strength is a good predictor of how people will vote.
Global economy – The global economy will be key this year. The U.S. is heavily dependent on imports and exports, so if the global economy struggles, the U.S. will feel the impact.
2020 Florida Realtors