2020 Prediction: Sellers Will Remain on Sidelines in 2020
SANTA CLARA, Calif. – According to realtor.com’s 2020 housing forecast, the U.S. housing market will continue to slow in 2020 as inventory reaches historic lows and economic uncertainty prompts consumers to pull back on their spending.
Despite some relief from new construction, moderating home prices and relatively low interest rates, first-time buyers will continue to struggle with affordability, and sellers will contend with flattening price growth and slowing activity. Together, those trends will drive existing home sales down 1.8% to 5.23 million, according to realtor.com’s economists.
Highlights of the realtor.com 2020 forecast
- Home prices will flatten, increasing just 0.8% nationwide. Prices will decline in more than 25% of the 100 largest metros, including Chicago, Dallas, Las Vegas, Miami and San Francisco.
- Inventory shortages will prevail and could reach historic lows, especially in the entry-level category.
- Mortgage rates will remain reasonable, averaging 3.85% throughout the year.
- Affordability will remain a key driver for buyers, benefitting mid-sized markets.
- Millennials – with the oldest members approaching 40 and the biggest cohort turning 30 in 2020 – will surpass 50% of all home purchase mortgages.
- With little incentive to sell, baby boomers will continue to hold onto their homes, while Gen X is more likely to upsize, freeing up some entry level inventory.
“Housing remains a solid foundation for the U.S. economy going into 2020,” said George Ratiu, senior economist at realtor.com. “Although economic output is expected to soften – influenced by clouds of uncertainty in the global outlook, business investment and trade – real estate fundamentals remain entangled in a lattice of continuing demand, tight supply and disciplined financial underwriting. Accordingly, 2020 will prove to be the most challenging year for buyers, not because of what they can afford, but rather what they can find.”
Buying a home in 2020 will be a mixed bag: It will offer more opportunities for some as the supply of new homes begins to offset inventory pressure that has built over the last four years, interest rates remain reasonable and home prices flatten. The broad price moderation will continue to make mid-sized markets in the Midwest and South attractive. However, the construction of new homes in 2019 was largely isolated to upper-tier housing, and that is unlikely to ease conditions for first-time homebuyers. Additionally, while qualifying for a mortgage could be easier on paper due to stabilizing prices and a still relatively low rate environment, the total number of homes available for sale will hit a record low.
Sellers in 2020 will grapple with dormant price growth and slowing activity: It will require a greater level of patience and a thoughtful approach to pricing. Entry-level home sellers can expect steady competition for their homes, which will keep prices firm. Upper-tier housing is expected to be softer as properties will likely sit on the market longer, requiring greater incentives to close deals. As the market moves toward more balance, sellers who adjust to local market conditions can expect to benefit from continuing demand.
Florida metro area sales and price predictions for 2020
- Cape Coral-Fort Myers: 0.0% sales growth, 2.6% price increase
- Deltona-Daytona Beach-Ormond Beach: 1.1% sales growth, 0.2% price increase
- Jacksonville: -2.3% sales growth, 0.7% price increase
- Lakeland-Winter Haven: -0.9% sales growth, 0.2% price increase
- Miami-Fort Lauderdale-West Palm Beach: -1.1 sales growth, -1.2% price increase
- North Port-Sarasota-Bradenton: 1.6% sales growth, 0.5% price increase
- Orlando-Kissimmee-Sanford: 0.9% sales growth, 1.8% price increase
- Palm Bay-Melbourne-Titusville: -9.8% sales growth, 0.2% price increase
- Tampa-St. Petersburg-Clearwater: 0.6% sales growth, 1.6% price increase
Realtor.com’s forecasted key 2020 housing trends
- Millennials expand their market domination – Demand from those born between 1981-1997 will reach new highs in 2020 with millennials accounting for more than 50% of all mortgages by the spring. In 2020, the largest cohort of millennials – 4.8 million of them – will turn 30, a time when many purchase their first home, while the oldest members of the generation will reach 39, often a point when many look to move from the city to the suburbs for family-friendly amenities. The largest generation in history will consolidate their top spot in mortgage originations and effectively outnumber Gen X and baby boomers combined in their share of purchases.
- Growing economic uncertainty – Although a recession isn’t likely in 2020, the economy will show signs of softening. The pullback in business spending is expected to lead to a slowdown in consumer spending. Housing remains the largest single consumer expense, making home-buying activity a major contributor to the U.S. economy and a bellwether for economic expectations. Rising uncertainty about the economic outlook will dampen consumer enthusiasm about spending, leading to a decline in sales and an increase in homeowners’ tenure.
- Low inventory – Despite increases in new construction, 2020 will once again have an inventory shortage that has plagued the housing market since 2015. Inventory could even reach a historic low as a steady flow of demand, especially for entry level homes, and declining seller sentiment keep a lid on sales transactions. With housing prices expected to stabilize and concern over economic uncertainty, there will be little incentive for baby boomers to sell in the coming year. The younger Gen X is more likely to upsize and free up entry level homes, but not fast enough to ease inventory woes.
- Affordability brings more focus to secondary markets – As more buyers are priced out of suburban environments near large metropolitan areas, they will begin searching for family-friendly lifestyles in other metros or across state lines. Cities in Arizona, Nevada and Texas will continue to benefit from shoppers looking for more affordable alternatives to California. Meanwhile, home seekers from expensive Northeast markets will find the warmer options in the Carolinas, Georgia and Florida attractive. Midwest markets will become more attractive, as buyers will find the affordable housing and solid, diversified economies of Ohio, Indiana and Kansas compelling.
- The elections are 2020’s wild card – Along with the presidential election, candidates will run for 35 of the 100 seats in the U.S. Senate, along with 435 seats in the House of Representatives. The 2020 elections will be closely watched by consumers and businesses for indications of potential changes. Although the outcome of the presidential election is not directly tied to the performance of the housing market, business optimism and investments and consumer confidence influence economic output, and those can have an indirect effect on housing activity, especially employment, wages and interest rates.
© 2019 Florida Realtors®