Yep, it’s that time of year again when we start to look over the first half of the year or so in retrospect, try to decide how the rest of this year will play out and begin speculating and planning for the year ahead.
Ahhh…memories, resolutions, and future goals. You gotta love it!
OK, let’s finish out this year strong and prepare for a spectacular 2020!
Are you ready?
What Factors Drive the Housing Market?
There are a variety of factors that drive the housing market. So let’s take a look at each one separately.
1. Housing Prices
For most people in the U.S., a large part of their overall wealth is their home. Buying and owning a home is, for most people, one of the biggest investments they will ever make. In fact, according to Investopedia, 65.2% of U.S. families own their own primary residence versus the rest of the population who rent or have other housing accommodations.
Housing prices are affected positively or negatively by the following:
- Available inventory
- Number of new homes being built
- Number of people selling
- Number of people buying
- Affordability of available homes
- Speculative demand
- Interest rates
- Economic growth of the country
- Number of households in the country
- How easy it is to get a mortgage
2. Demographic Trends
Any demographic home buying trend or home selling trend can significantly influence the stability of the housing market. For example, Baby Boomers who are retiring in droves and have been since 2010, will continue to do so for many years to come, so they are downsizing or moving to retirement homes. Then there are the Millennials who are now the largest home-buying demographic surpassing the number of Baby Boomers for the first time. Millennials are now starting out on their own, settling into their careers, starting families, and buying their first homes creating a demand for starter homes. This is why anyone demographic group can greatly affect the housing market, and they do so by just having the numbers and/or the ability to buy a home.
3. Interest Rates
High interest rates cause mortgage payments to rise, which lowers housing demand. And, of course, as you probably already know, low interest rates cause more people to be able to afford a mortgage which positively affects the housing market. However, with that being said, low interest rates create demand which drives up home prices.
When the unemployment numbers are high, fewer people can afford to buy a home. And sometimes, just the fear of unemployment will prevent people from buying a home. This factor is directly related to economic growth. When economic growth is high, more people have jobs and incomes rise; therefore, more people can afford to buy a home. However, during a recession, incomes fall and people lose their jobs which means they can’t afford or qualify to buy a home.
5. Housing Supply and Demand
You probably already know that just like anything else, supply and demand are key factors that drive the housing market. When the demand for houses is high, the prices go up. When the demand for houses is low, the prices go down. We just wanted to mention it here because this component is one of the factors that drive the housing market, so we didn’t want to leave it out.
Now let’s look at the remaining months in 2019, so we can discuss the top home-buying trends for 2019, or at least what’s left of it.
The Top Home Buying Trends for the Last Quarter of 2019
The housing market has been going strong and thriving for years now. Is that trend going to continue? Let’s take a look.
The Fed’s cut the interest rates already once this year, which was a bit unexpected since they have been consistently raising them for the last few years. Now, the Fed’s have cut the interest rates again. And remember, lower interest rates mean more demand for housing because lower interest rates mean more people can afford homes because their monthly mortgage payments will be lower. So this is a very good thing for the housing market because, with lower interest rates and rising demand, there is no foreseeable reason the housing market would experience any negative effects throughout the rest of this year.
Here are some stats as being reported by CNBC.
- U.S. housing starts jumped 12.3% to 1.364 million seasonally annualized units which was much more than the 1.25% that was expected. This is a 12-year high in housing start jumps.
- Permits came out to more than 1.49 million from 1.319 seasonally annualized units.
- Housing markets are experiencing strong industrial production.
Here are the top home-buying trends for the last quarter of 2019.
- Seller market conditions will continue. There are more buyers than there are sellers.
- Home prices are expected to keep rising.
- Mortgage rates are still dropping.
- Affordability is still a problem, but the lower mortgage rates will help compensate for that.
- Refinancing now could save you money.
- First-time homebuyer demand is rising.
- Strict lending requirements are beginning to relax a bit.
OK, so what are the predictions for the 2020 housing market?
Let’s take a look.
The Top Home Buying Trends Predicted for 2020
Of course, as you know, every year the experts try to predict what they think is going to happen with the housing market in the upcoming year. However, again, as you know, these predictions are frequently wrong, because, let’s face it—no one really knows and in the current state of our economy paired with so many opinions on whether it is good or bad, it’s no wonder the predictions are going to lean towards what each expert believes to be true regarding the economy. So, with that being said, we are going to give you a few 2020 housing market predictions, but it will remain to be seen which ones come to pass.
🔥 What the Experts are Predicting…
➣ The National Association of Realtors is predicting that median home prices are going to continue to rise slightly in 2020.
➣ Zillow’s Home Price Expectations Survey panel of experts is predicting that home prices will rise by about 2.8% across the country in 2020. That means prices are going to continue to go up, but they will go up at a slower rate.
➣ Veros® Real Estate Solutions market data is showing the average appreciation rate for residential real estate in the 100 largest U.S. markets will rise by about 3.7% through June 1, 2020. Veros states that although there is some softening in the housing market, the overall health of the housing market will remain in pretty good shape.
Zillow experts are saying they expect home-buying demand in 2020 to be quite a bit lower than in 2019. Their reasoning for this is because first-time homebuyers have not been able to afford the record home prices currently in place. Nor can they afford new construction homes for the same reason.
However, with the recent interest rate cut (which just happened), that might just help even out the gap, not to mention that the economy is still booming so unemployment rates are lower and wages are rising higher. But, with that being said, if home prices continue to rise, which they are predicted to do, the demand will drop because houses will once again become unaffordable. So due to these factors, it could indicate an upcoming weakening of both new and existing home sales in the 2020 housing market. However, we will all have to wait and see how it all plays out.
What about a Recession in 2020?
Yep, I guess we’re going to go there. However, as you know, I don’t like to because the experts continue to say every year that a recession is inevitable and so far, for years, they’ve been wrong.
OK, so here goes…
Here are some quotes from Bankrate’s panel of experts:
🔥 “Current projections show a 55% chance of a recession in the second half of 2020. With the biggest risks being tradewar uncertainty and a global slowdown.”
🔥 “The odds of a recession between now and the November 2020 election are 25%. Consumers are in an excellent position to carry this record expansion through the 2020 election. Hyperfocus on the behavior of the yield curve and the trade spat with China ignores the strong position the U.S. consumer is in right now and should continue to be in over the next 18 months.”
There is a bevy of experts on Bankrate’s panel that are all predicting either a 25-30 percent chance of a recession, with others predicting a 45-50 percent chance of a recession. However, there are two of their experts that are predicting a 75% chance of a recession with one of them predicting a zero percent chance of a recession in 2020.
So there you have it.
What did we learn?
OK, let’s move on shall we?
What Would a Recession Mean for the Housing Market in 2020?
I thought you said we were done talking about recessions and predictions?
Yes, but, if by chance one of those experts is right, I thought it prudent to go over what would happen to the housing market in 2020 if there were a recession.
As we mentioned above, some experts are predicting a recession in either 2020 or 2021. However, they also say, unlike the last recession, the housing market isn’t going to be the cause. Most experts concur the next recession will probably be caused by trade wars, a geopolitical conflict, or a stock market crash or correction.
Now, even though the housing market probably isn’t going to be the cause of the next recession, that doesn’t mean the housing market won’t suffer when the next recession hits. Typically, when there is a recession, the housing market will slow down because home buying will slow down. This means homes will stay on the market longer, bidding wars will be less frequent, and more than likely, fewer people will be able to buy a home due to affordability.
OK, we understand, but won’t a recession ultimately help millennials buy a house?
And here’s why…
After the last recession in 2008, houses were cheaper than most of us have ever seen. However, that’s not going to happen with the next recession because the next recession isn’t going to be due to a housing market bubble. In other words, the recession didn’t cause the last housing market crash, the last housing market crash (housing market bubble) was what caused the recession.
OK, so how will millennials and first-time homebuyers affect home buying in 2020?
How Will Millennials and First Time Homebuyers Affect Home Buying in 2020?
The largest segment of millennials will turn 30 in 2020 which is an age when many people decide to buy a home. Millennials represent 36% of the home buying market and 65% of them are first time home buyers. So the housing market is counting on millennials to continue buying homes, and they probably will. This is because millennials are getting older, have better jobs, and deeper pockets. Therefore, millennials can afford larger mortgages and down payments to go with them. So millennials have the collective purchasing power to keep a healthy housing market going.
The only problem with this is that the higher mortgage rates of the last few years have raised the price of starter homes and this has previously kept many millennials from buying. However, that’s all changing with the interest rate reduction in July and again, most recently in the middle of September this year. That means millennials, first time home buyers, and anyone else for that matter have the opportunity to buy and afford a house now rather than waiting. The lower interest rates will make the mortgage payments on those higher prices homes affordable once again.
If you would like more information about buying or selling a home, please Contact the Lakeland Real Estate Group. We will answer all your questions and provide you will a free market comparison for your current and/or potential neighborhood so you know exactly how to proceed. Give us a call today, we’d love to show you how exciting home buying and/or selling can be.
Additional Home Buying Resources
- Pre-Approval vs Pre-Qualification, which is better? – John Cunningham covers the importance for serious buyers to get a pre-approval letter and how that will help.
- 35 Mortgage Terms to Know – Bill Gassett’s article of 35 common mortgage terms is very useful as you move forward with your loan application.
- First Time Home Buyer Facts 2019 – Jeff Nelson shares common things a first time home buyer will experience when purchasing their first property
- How to Improve Your Credit Score | 8 Easy Tips – Michelle Gibson shows homebuyers tips on increasing credit score. By improving your credit score sometimes as little as 10 or 20 points you could potentially save yourself thousands of dollars in the long run.
About the author: The above real estate article “The Top Home Buying Trends for the Last Quarter of 2019 and Into 2020” was written by Petra Norris of Lakeland Real Estate Group, Inc. With over 20 years of combined experience of selling or buying, we would love to share our knowledge and expertise. Petra can be reached via email at firstname.lastname@example.org or by phone at 863-712-4207