The housing market has begun to show signs of heating up as more buyers and sellers returned to the market in June. Here are the updated housing market predictions for 2020 and 2021. Although it has become a bit difficult to come up with a solid housing market forecast as things are changing with each passing month, the latest housing market trends still point to a shift towards more balanced conditions throughout this year. Many economists still believe that house prices will fall in the coming months but such forecasts are losing grounds as the U.S. housing market so far remains undaunted by the economic recession.
What happens to the housing market next depends on the second wave of the COVID-19 outbreak and, in turn, that of the overall U.S. economy. Despite the ongoing pandemic, the real estate activity was continuing (at a slower pace) with some buyers & sellers merely shifting their timing down the line. Home sales went on a declining spree due to social distancing & economic unpredictability but home prices are still strong across the nation. The national median existing-home price for all housing types in May was $284,600, up 2.3% from May 2019 ($278,200) — marking 99 straight months of year-over-year gains.
Although the housing market is showing signs of rebounding from economic shutdowns no one knows how persistent the coronavirus pandemic will be or how long the economy will remain in a recession. The good thing, at least for buyers and investors alike, is that house prices have nearly flattened and are poised to remain stable in the latter half of this year — with a forecasted increase of just 1.1 percent by the end of 2020.
The continuous and steep decline in new listings has kept the market warm but this kind of trend has a greater impact on overall sales in the housing market. A decrease in new listings leads to a drop in sales as more listings help buyers with inventory choices. As sellers are expected to return to the market in the June through August time frame, we do see a rebound in new listings on the market. But there’s a catch.
Firstly, we’re expecting a second wave of coronavirus pandemic in the fall season, which might again lead to some percentage of sellers & buyers backing out. Secondly, according to Realtor.com, the historical trend for the colder months of the year show that home sales slow down. Therefore, all these factors indicate a slower pace of sales toward the end this year – already a 15 percent drop in existing home sales has been forecasted for 2020. According to NAR, the annual existing-home sales would be down by less than 10% and new home sales are expected to be higher this year than last.
Before the coronavirus pandemic began, the U.S. housing market was already short from the supply side. Years of slow home-building activity coupled with the ongoing financial crisis point to the fact that the number of homes for sale would still fall well short of demand in the coming months. Housing market experts predict that sharp declines in the prices look improbable as the buyer demand has remained relatively strong despite the pandemic. A lot of new buyers want to purchase a house and while investors have taken a pause.
The housing market 2020 was running at a record pace in the early stages of the coronavirus outbreak in February 2020, with sellers continuing to gain leverage, and buyers benefit from lower mortgage rates. We saw some of the best home sales and housing starts to pace in more than a decade until February 2020. As the population of millennials is increasing, the demand side of housing remains strong. Many buyers need to get into a larger home because they have a growing family.
The homebuyers in every segment will continue moving forward with transactions. According to the National Association of Realtors®, pending home sales mounted a record comeback in May, seeing encouraging contract activity after two previous months of declines brought on by the coronavirus pandemic. The Pending Home Sales Index (PHSI) is NAR’s forward-looking indicator of home sales based on contract signings. It rose 44.3% to 99.6 in May, chronicling the highest month-over-month gain in the index since NAR started this series in January 2001.
The median existing single-family home price was $287,700 in May, up 2.4% from May 2019. Existing condominium and co-op sales were recorded at a seasonally adjusted annual rate of 340,000 units in May, down 12.8% from April and down 41.4% from a year ago. According to data from Realtor.com®, among the largest metro areas, active listings were up by more than 10% in May compared to April in several metro areas, including Urban Honolulu, San Francisco, San Jose, Denver, and Colorado Springs. Therefore, taking into the current housing market trends, we believe that it is going to more like a balanced real estate market with buyers getting some relief from the rising housing costs.
As we know the U.S. housing market saw modest increases across the board in the past year, though there were hot spots in the market in terms of both geography and price ranges. House prices had risen for 33 consecutive quarters across the United States. Under the current conditions, the sellers won’t expect buyers to present offers well over the asking price. Prices in the rental housing market are likely to remain stable too. Although over 20 million people lost their jobs in April, the average rent fell by a mere 0.2% from April to May.
The National Multifamily Housing Council (NMHC) found that 80.2% of apartment households made a full or partial rent payment by May 6 in its recent survey of 11.4 million units of professionally managed apartment units across the country. Short term or vacation rentals have had a major impact, though. Year over year short-term rental reservations for 2020 summer travel is now down by a whopping 75%. Owning a home has been part of the American Dream.
While the effect of lower mortgage rates reignited housing market activity toward the end of 2019 and the start of 2020, February showed some early signs of coronavirus outbreak, particularly in markets that were hit early and hard. Those interested in purchasing homes are looking at the enticing low mortgage rates.
According to Freddie Mac, mortgage rates continue to slowly drift downward with a distinct possibility that the average 30-year fixed-rate mortgage could dip below 3 percent later this year. The current average commitment rate for a 30-year, conventional, fixed-rate mortgage is 3.15%. The average commitment rate across all of 2019 was 3.94%. Record-low mortgage rates are likely to remain in place for the rest of the year, and all the Fed’s policymakers foresee no rate hike through 2022. This will be the key factor driving housing demand as state economies steadily reopen.
The Federal Reserve says it will keep buying bonds to maintain low borrowing rates and support the U.S. economy during a recession. The economy is expected to shrink by 6.5% this year, in line with other forecasts, before expanding 5% in 2021. The Federal Reserve foresees the unemployment rate at 9.3%, near the peak of the last recession, by the end of this year. The rate is now 13.3%.
Let us discuss in detail the various housing indices & their predictions for 2020. Please note that we have retained the earlier housing market predictions before the Covid-19 pandemic hit the U.S. for better clarity and comparative analysis. We have updated this article with the latest housing data and forecast from some of the top national brokerages like Realtor.com (check reference section).
Housing Market 2020: Latest Real Estate Trends Amid COVID-19 Pandemic
The updated data for housing market predictions from various sources like Realtor.com shows that sales of homes will decline by 15 percent in 2020. The home prices would flatten out. That’s compared to the original housing market forecast of a decline of 1.8 percent in home sales. Single-family housing starts, which were expected to increase by 10 percent in 2020, are now predicted to decline by 11 percent.
That’s mainly due to vigorous social distancing norms and economic uncertainty has compounded this temporary restraint on real estate transactions. According to their statistics, the new listings have declined across the nation’s largest metros as sellers wait out the crisis. The positive forecast is that there is expected a short-term bump in sales for late summer and early fall due to pent up buyer demand, fear of the pandemic reducing, and low mortgage rates.
Realtor.com’s recent report for June 2020 shows that with the opening up U.S economy, the key housing indicators have begun to turn around.
Yearly declines in newly listed inventory have slowed and listing prices have recovered after reaching their low point during mid-April. However, homes for sale remained on the market for more than two weeks longer than this time last year due to stay at home orders and new normal resulting from COVID-19 pandemic. Nationally, the typical home spent 72 days on the market in June, 15 days more slowly than June of last year.
Housing inventory continued to be constrained in June. It is due to some sellers still opting to pause and wait for a couple of months. Nationally, inventory decreased 27.4 percent year-over-year, a faster rate of decline compared to the 19.9 percent year-over-year drop in May. The inventory of newly listed properties in June decreased by 19.3 percent since last year. Although sellers have paused in response to coronavirus pandemic, the rate of decline in newly listed properties has improved from a decline of 29.4 percent year-over-year in May, and a decline of 44.1 percent year-over-year in April. This signals that sellers are starting to return to the marketplace.
Housing inventory in the 50 largest U.S. metros declined by 26.5 percent year-over-year in June. This is acceleration compared to the 21.9 percent year-over-year decline in May. None of the largest 50 metros saw an inventory increase on a year-over-year basis and 47 out of 50 saw greater inventory declines than last month.
The metros which saw the steepest declines in inventory in June 2020 were – Providence-Warwick, RI-MA (-42.1 percent); Cleveland-Elyria, OH (-41.5%); and Baltimore-Columbia-Towson, MD (-41.4%).
The metros with the steepest declines in housing inventory in May 2020 were – Philadelphia-Camden-Wilmington, PA-NJ-DE-MD (-38.6 percent); Providence-Warwick, RI-MA (-35.8%); and Baltimore-Columbia-Towson, MD (-34.5%).
The houses that are not delisted are spending longer on the market, and sellers aren’t ready to reduce listing prices to attract buyers. Buyers too are following a wait-and-see approach until this crisis is over. Those who are interested in making offers are looking for some discounts on home prices.
Nationally, the typical home spent 72 days on the market in June, 15 days more slowly than June of last year and 1 day more than last month. In the 50 largest U.S. metros, the typical home spent 53 days on the market, and homes only spent 6 days longer on the market, on average, compared to last June.
In April & May, the nation’s median listing price growth had deaccelerated, driven by diminished seller expectations and a shift in the mix of homes for sale. However, in June, the median national home listing price growth accelerated. It grew by 5.1 percent year-over-year, to a new high of $342,000.
This is an acceleration from the 1.6 percent year-over-year growth seen in May, 0.6 percent year-over-year growth seen in April, and 3.8 percent year-over-year growth seen in March.
Of the largest 50 metros, 46 saw year-over-year gains in median listing prices in June, up from 35 in May. Listing prices in the largest metros grew by an average of 5.7 percent compared to last year, an acceleration from the 3.3 percent year-over-year gain seen last month, and higher than the national growth rate.
The metros with the highest price gains in June were – Pittsburgh, PA (+23.8 percent); Los Angeles-Long Beach-Anaheim, CA (+21.4 percent); and Cincinnati, OH-KY-IN (+16.6 percent).
The metros with the steepest price declines in June were – Miami-Fort Lauderdale-West Palm Beach, FL (-2.3 percent); Jacksonville, FL (-0.8 percent); and Dallas-Fort Worth-Arlington, TX (-0.7 percent).
The metros with the highest price gains in May were – Los Angeles-Long Beach-Anaheim, CA (+14.9%), Pittsburgh, PA (+14.0 percent); and Cincinnati, OH-KY-IN (+12.1%).
The metros with the steepest price declines in May were – Detroit-Warren-Dearborn, MI (-3.4 percent); San Antonio-New Braunfels, TX (-3.2 percent); and Seattle-Tacoma-Bellevue, WA (-3.1 percent).
The coronavirus crisis response was unprecedented. The federal government ordered a de facto shutdown of the entire private economy, closing an estimated eighty percent of businesses. It has caused unemployment to soar to at least ten percent, while tens of millions are idled. Housing market data of the last month showed that it is beginning to heat up again as more sellers and buyers enter the market. House prices in May were 5.1% higher than a year earlier.
That rate of growth is only marginally below the average since the end of the housing crash a decade ago. Housing prices continue to march upwards in 46 out of 50 larger metros. Even the costliest metros like Los Angeles-Long Beach-Anaheim, CA saw a 21.4 percent increase in housing prices as compared to last year.
As home sales being to accelerate and business activity continues to expand at a cautious pace, it is a long way to go. Buyer demand is inching up but many sellers have yet to return to the market. As inventory declines in the major U.S housing markets, it raises new challenges for both buyers and sellers. As you peruse further, we’ll discuss some of the key housing indicators, and based on them we’d get reasonably accurate housing market predictions for 2020 and the foreseeable future.
Housing Market 2020: Forecast & Trends (Pre COVID-19)
With 10 years having now passed since the Great Recession, the U.S. has been on the longest period of continued economic expansion on record. The housing market has been along for much of the ride and continues to benefit greatly from the overall health of the economy. However, hot economies eventually cool and with that, hot housing markets move more towards balance. Realtor.com’s national housing forecast was that home price growth will flatten, with an expected increase of 0.8 percent. Inventory will remain constrained, especially at the entry-level price segment. Mortgage rates are likely to bump up to 3.88 percent by the end of the year.
Tight inventory coupled with rising mortgage rates will lead to dropping sales. Buyers will continue to move to affordability, benefiting smaller and mid-sized markets. The housing market predictions were pointing out that all the housing indices would trend upward for the nation as a whole as well as in every state, including the top 100 metro areas. After the coronavirus pandemic came into being, the housing market forecast runs the gamut from optimistic to pessimistic.
The pace of home sales relative to inventory reached a new record high in February, although hints of deceleration were beginning to surface. The median existing-home price for all housing types in March was $280,600, up 8.0% from March 2019 ($259,700), as prices increased in every region. The median home price gains marked 97 straight months of year-over-year gains (nationally). In March, the unsold inventory was equal to a 3.4-month supply at the current sales pace, up from three months in February and down from the 3.8-month figure (from a year ago).
Zillow had earlier predicted that there will be a housing recession in 2020. They blamed monetary policy for this; the market has been expanding rapidly but is due for a correction. They also cite housing affordability or a lack thereof. That means the Millennials hitting the ideal age to buy their first home often can’t afford it or build it. Nor are we going to see the masses of regulation that limit land use and drive up housing costs repealed any time soon. Minor tweaks to allow for accessory dwelling units (ADUs) or new denser multifamily housing units take years to achieve anything. What does this mean for the housing market in 2020?
We’ll see prices for affordable and starter homes continue to increase at near double-digit rates while the general real estate market goes up at near or just above the rate of inflation. Specific areas may appreciate or depreciate depending on inventory and demand. We can use the consumer’s demand for each generation to give us a housing market forecast for 2020 and beyond.
The inflation of new home prices has slowed to something close to the rate of inflation. However, we shouldn’t expect housing prices to fall, since the cost of new construction is going up. A lack of people in the skilled trades and increases in the minimum wage will increase the pay rates of those building homes. That’s aside from the steadily inflating material costs. Baby Boomers continue to have a major impact on the housing market, though this is radically different from how older generations impacted housing markets in the past. Baby Boomers are much more likely to remain healthy and active in their old age.
This means they’re less likely to pass-away or sell the family home to a young family and move into assisted living. When the retiree decides to downsize, they may sell the 2500 square foot single-family home, but they compete for a smaller starter home instead of moving into a retired adult community. The divorce rate and broken families of the past few decades exacerbate things, too. Mom or Dad lives alone in the house instead of sharing it with their significant other. Housing demand is driven by the number of households, not the number of adults, so divorced and single individuals drive up demand for their own homes, too.
The sheer cost and inconvenience of moving have resulted in the average time people remain in one place to increase. In 2019, the average person remained in the same house for roughly eight years. For comparison, the average stay was only four years in 2007. This results in less churn in the housing market and fewer available existing homes on the market. At the same time, Generation Xers were hard hit by the Great Recession.
They’ve only recovered since 2012. This means that Generation Xers are much more likely to remain in the rental market than prior generations at that age. This drives up rental rates and eats into the rental supply. Yet this generation hasn’t abandoned the dream of owning a home, increasing demand for starter homes.
Housing market predictions for 2020 and beyond run the gamut from optimistic to pessimistic. For example, Zillow predicts that there will be a housing recession in 2020. They blame monetary policy for this; the market has been expanding rapidly but is due for a correction. They also cite housing affordability, or a lack thereof. That means the Millennials hitting the ideal age to buy their first home often can’t afford it or build it. Nor are we going to see the masses of regulation that limit land use and drive up housing costs repealed any time soon.
Minor tweaks to allow for accessory dwelling units (ADUs) or new denser multifamily housing units take years to achieve. While Millennials are painted as unwilling to settle down (and they are much more likely to rent than prior generations), they do account for a third of all new home buyers. They also account for nearly half of all mortgages. We can expect them to continue to buy homes and condos at an increasing rate as they settle down and start families. They’re just more likely to buy a condo in a walkable community than a single-family house in the suburbs than Generation X.
Millennials are affecting the real estate market in other ways, too. They prioritize a low maintenance home with smart appliances and an energy-efficient design. If you can’t offer this, they’ll either lower the price or move on to something else. They also prefer walkable communities over having to drive everywhere. They’ll pay a premium to be near public transit, too, since this can offset transportation costs.
In short, they’ll pay a little more for a house or condo that lets them ditch a car. What does this mean for our 2020 housing market forecast and beyond? Home prices will continue to rise slowly due to limited supply and demand, but homes that meet Millennial’s ideals and their budgets will continue to appreciate at double-digit rates.
Housing Market 2020: Latest Forecast & Trends (Post COVID-19)
As we know the pre-COVID housing market was remarkably strong. Now we’ll discuss how housing market trends and forecasts have changed after the impact of COVID-19 pandemic. These key housing figures and their forecast are changing every month depending upon the level of economic uncertainty caused by the outbreak. Some real estate market experts feel that the recovery has already begun as suggested by the housing market report of June. However, it will likely be gradual, and it will also be subject to the pandemic flaring up again in the fall season.
According to the National Association of Realtors®, overall sales decreased year-over-year, down 17.2% (4.33 million units in April 2020) from a year ago (5.23 million in April 2019). The national median existing single-family home price in the first quarter of 2020 was $274,600, up 7.7% from the first quarter of 2019. The national median existing single-family home price in the first quarter of 2020 was $274,600, up 7.7% from the first quarter of 2019 ($254,900).
Housing Sales & Their Forecast 2020 – 2021
Home sales generally pick up in the spring-summer season. People start shopping for new homes around Spring Break with the hope of moving over holiday weekends like Memorial Day weekend or moving during the summer when it has the least impact on their kids’ education. This is why housing market predictions always include an increase in sales between March and September. The federal government’s shutdown of so-called non-essential businesses put a hold on most real estate transactions. Renters are still able to get critical repairs like someone coming to fix a broken air conditioner.
Rent and mortgage payments may be deferred in some cases, but others continue to pay their bills so they don’t have to worry about a lump sum due in four months. But the shutdown intended to slow the spread of the coronavirus has stalled real estate sales. Transactions that were already underway were completed. And real estate agents are trying to shift to virtual home tours via panoramic pictures of every room and drone photography. US housing market predictions suggest that this will help some homes sell, but it isn’t enough to get people to sign the dotted line at the rate they used to.
After all, you can’t get home inspectors and appraisers out to properties during government-ordered shutdowns, and that’s essential to completing the real estate transaction. Capital Economics’ housing market predictions are that we’ll see a one-third decline in home sales for the summer of 2020. Fannie Mae is assuming that the economic shutdown will last through the summer season and spike in unemployment will drag on the housing market for the entire year. This is why Fannie Mae is predicting a 15 percent drop in home sales for 2020 over 2019 numbers.
Latest Update On Home Sales
The housing market & real estate activity has begun to see signs of improvement and growth. According to Lawrence Yun, NAR’s chief economist, “The outlook has significantly improved, as new home sales are expected to be higher this year than last, and annual existing-home sales are now projected to be down by less than 10% – even after missing the spring buying season due to the pandemic lockdown.”
According to the National Association of Realtors®, the existing-home sales fell in May, marking a three-month decline in sales as a result of the coronavirus outbreak. However, pending home sales mounted a record comeback in May, seeing encouraging contract activity after two previous months of declines. Every major region recorded an increase in month-over-month pending home sales transactions, while the South also experienced a year-over-year increase in pending transactions. May’s national price increase marks 99 straight months of year-over-year gains.
|Existing-home sales fell in May, marking a three-month decline in sales as a result of the coronavirus outbreak.|
|Total existing-home sales that include single-family homes, townhomes, condominiums, and co-ops also slumped|
|The decline in sales was 9.7% from April to a seasonally-adjusted annual rate of 3.91 million in May.|
|Overall, sales fell year-over-year, down 26.6% from a year ago (5.33 million in May 2019).|
|The median existing-home price for all housing types in May was $284,600, up 2.3% from May 2019 ($278,200), as prices increased in every region.|
|First-time buyers were responsible for 34% of sales in May, down from 36% in April 2020 and up from 32% in May 2019.|
|All-cash sales accounted for 17% of transactions in May, up from 15% in April 2020 and down from 19% in May 2019.|
|Distressed sales – foreclosures and short sales – represented 3% of sales in May, about even with April but up from 2% in May 2019.|
|Single-family home sales sat at a seasonally-adjusted annual rate of 3.57 million in May, down 9.4% from 3.94 million in April, and down 24.8% from one year ago.|
|Existing condominium and co-op sales were recorded at a seasonally adjusted annual rate of 340,000 units in May, down 12.8% from April and down 41.4% from a year ago.|
Latest Home Sales Forecast:
- Home sales are constrained by low inventory and diminished seller and buyer confidence as the effects of COVID linger in the labor market.
- Existing Home Sales Down are forecasted to be down 15% for the year as a whole.
- Q2 2020 is expected to be worst, down 25%.
- NAR expects existing-home sales to reach 4.93 million units in 2020 and new home sales to hit 690,000.
- According to Lawrence Yun, NAR’s chief economist, in 2021, sales are predicted to rise to 5.35 million units for existing homes and 800,000 for new homes.
Housing Prices And Predictions 2020 – 2021
With supply-constrained and demand boosted, house prices seem to rest on solid foundations during the Covid-19 outbreak. In 2019, the average home cost around 250,000 dollars. The general forecast is that home prices will fall through the end of 2020 before recovering in the spring of 2021. For example, Zillow housing market predictions show prices falling through the fall of 2021. They expect to see home prices recovering in 2021. US housing market predictions for 2021 say prices to remain unchanged year over year at best. The decline in sales is projected to be accompanied by a flattening in price growth. With the supply of available homes continuing to balance, and the entry-level demand expected to remain strong.
Realtor.com’s National Housing Forecast shows that prices are expected to increase by 1.1 percent in 2020. Before COVID-19 went viral, US housing market predictions for 2020 showed appreciation of roughly 1 percent. Existing home sales were predicted to fall about two percent, while single-family starts were predicted to increase six percent. Many real estate experts do not predict a steep price declines in the next 12 months. Home prices are holding up to the decline in transaction activity. Price gains are reaccelerating as the mix of homes for sale appears to be reverting toward pricier properties.
Latest Housing Prices Trends
|In the first two weeks of March, the median listing prices were increasing 4.4 percent year-over-year on average.|
|The median list price on pending contracts in the four weeks through April 26 was up 2.6% from one year ago.|
|The April national median listing price was $320,000, up 0.6 percent year-over-year.|
|This was a further deceleration from the 3.8 percent year-over-year growth seen in March.|
|In the three weeks of May ending May 9, May 16, and May 23, the median national listing price posted an increase of 1.4 percent, 1.5 percent, and 3.1 percent year-over-year, respectively.|
|Locally, 77 of 100 large metros saw asking prices increase over last year.|
|In May 2020, the median national home listing price grew by 1.6 percent year-over-year, to a new high of $330,000.|
|This is a re-acceleration from the 0.6 percent year-over-year growth seen in April.|
|In June, the median national home listing price grew by 5.1 percent year-over-year, to a new high of $342,000.|
|This is an acceleration from the 1.6 percent year-over-year growth seen in May.|
|The nation’s median listing price per square foot also grew by 7.7 percent year-over-year, an acceleration from the 5.4 percent growth seen last month.|
|Listing prices in the largest metros grew by an average of 5.7 percent compared to last year, an acceleration from the 3.3 percent year-over-year gain seen in May, and higher than the national growth rate.|
|Of the largest 50 metros, 46 saw year-over-year gains in median listing prices in June, up from 35 last month.|
Data Courtesy of Realtor.com
Housing Market Inventory And Its Forecast 2020 – 2021
The economic fallout from governments’ decision to temporarily close business activity mid-March of this year has reverberated through housing markets. Due to severe restrictions, buyers and sellers curtailed their activity, leading to a massive drop in home sales and new listings. Housing inventory dropped sharply in April and continued shrinking in May. In turn, contract signings and sales of existing homes plunged by double-digits.
US housing market predictions for 2020 project that newly built homes will be slow to sell. Existing homes are slow to sell, too. And this sentiment is found across the housing industry. The builder confidence index saw its largest ever recorded a drop in March 2020. The National Association of Homebuilders index fell a record 42 points in April 2020 to just 30. An index of 50 or higher means homebuilders are optimistic.
That means home builders may finish projects they’re working on, but they are unlikely to start entirely new projects. Long-term, the coronavirus pandemic will constrict the housing supply. Construction is, in theory, essential. For example, plumbers and electricians could work in an unoccupied building and install infrastructure, assuming they’re far enough from each other. Unfortunately, social distancing rules did slow down new construction.
It is hard to have a team putting up walls or installing a new roof. Workers might be afraid to go to work out of fear of the coronavirus outbreak. And businesses often paused work, because they couldn’t get workers. They might have lumber, nails, and people, but they couldn’t get plastic sheeting and other items because their suppliers were shut down. Then there’s the impact on the supply chain. The COVID outbreak caused disruptions in manufacturing because non-essential factories were shut down.
The news focused on fashion brands making face masks or farms letting food rot because they couldn’t get it to a food processor. The public focuses on impending pork shortages due to pork processors shutting down. The public doesn’t see the likely shortages of building supplies because companies making asphalt shingles, PVC pipe, and other materials were often shuttered at the same time.
Travel restrictions crimped new construction, as well. Quarantining a city means builders can’t get specialty contractors in. They’ll choose to go elsewhere. Travel restrictions made it hard for people who might be willing to come to reach potential worksites. And rigid licensing laws make it difficult to bring in out-of-state tradesmen. That’s been an issue for years, but the cost of these policies hasn’t been this apparent before.
And while states are busy making it easier for nurses to work across state lines, no one pays attention to the lack of HVAC installers. We can also expect home builders to focus their limited resources (people and material) on luxury homes that have a higher profit margin. This is why the median price for new homes was expected to increase from 321,000 dollars to 326,000 dollars. This will exacerbate the shortage of affordable homes, causing greater increases in the price of new and existing affordable homes.
Buyers and sellers still managed to work through the process even with social distancing constraints, but the limitations are taking a toll on the real estate activity. Sellers are still reevaluating or postponing sales rather than wading into the current uncertain housing market. The housing inventory continues to decline at a faster rate than the previous month.
According to N.A.R., the total number of homes available for sale continued to be constrained in May as well.
- Total housing inventory at the end of May totaled 1.55 million units, up 6.2% from April, and down 18.8% from one year ago (1.91 million).
- Total housing inventory at the end of April totaled 1.47 million units, down 1.3% from March, and down 19.7% from one year ago (1.83 million).
- Unsold inventory sits at a 4.8-month supply at the current sales pace, up from 4.0 months in April and up from the 4.3 -month figure recorded in May 2019.
- Unsold inventory was at 3.4-months in March 2020.
Latest Update On Housing Market Inventory (June 2020)
According to Realtor.com, on the existing supply front, the total number of homes available for sale continued to decline in June as well.
- Nationally, inventory decreased 27.4 percent year-over-year, a faster rate of decline compared to the 19.9 percent year-over-year drop in May.
- This amounted to a loss of 363,000 listings compared to June of last year.
- The number of newly listed homes for sale also declined.
- Newly listed properties in June 2020 decreased by a significant 19.3 percent since last year.
- The rate of decline in newly listed properties has improved from a decline of 29.4 percent year-over-year in May.
- Housing inventory in the 50 largest U.S. metros declined by 26.5 percent year-over-year in June.
- This is acceleration compared to the 21.9 percent year-over-year decline in May.
Housing Supply Forecast: While more sellers are comfortable entering the housing market compared to April & May, the lack of further improvement in newly listed properties signals that a return to normal conditions for the housing market is still just beyond reach at this time. Based on realtor.com data, the volume of new listings has also been trending lower over the past couple of months, as sellers across the country were reluctant to wade into uncertain U.S. housing markets.
New listings are an important contributor to the volume of home sales. Due to an ongoing constrain in new listings, the existing home sales are expected to be 15 percent lower in 2020. Inventory will remain low, but the rate of decline steadies and the mix of homes for sale shifts toward greater availability of lower-priced homes.
Housing Demand And Its Forecast 2020 – 2021
The fall in GDP associated with the coronavirus pandemic, and the rise in unemployment, is unprecedented. Despite that, there is little sign so far that the housing market is about to subside. Housing market predictions that take Covid-19 into account have already come out. Before the pandemic hit the nation the supply of new housing was failing to keep up with demand. Social-distancing requirements are also likely to hold construction back in the coming months. With many sellers remaining on the sideline and a decline in housing starts, inventory will remain constricted.
Under normal market conditions, prices would be expected to skyrocket as inventory declines at a faster rate, but buyer demand is expected to see-saw throughout 2020 as the second wave of coronavirus pandemic pop-ups in fall. Hence, home price growth will flatten, with a forecasted increase of just 1.1 percent. If pandemic worsens further in the coming months, the sales are forecasted to take a hit as sellers might again de-list their properties and buyers would also stay away.
Capital Economics is estimating four million homes will be sold in 2020. This would be the lowest rate since 1991. For comparison, roughly 5.3 million homes sold in 2019. The trade war with China threatened international trade, creating a cloud that deferred business investment. Now we’re looking at a certain economic downturn due to the government’s choice to close the vast majority of businesses, nearly killing the service economy.
Experts think that the economic cost we’ve paid to try to contain the virus will weight down the economy into 2021. That is why home sales are expected to be around six million in 2021 instead of the previously projected 6.3 million. Economic sentiment affected the U.S. housing market, too. The number of homes for sale fell nearly 16 percent in March 2020, after listings fell 15 percent year over year in February. This was equal to roughly 200,000 homes being taken off the market.
People were reluctant or unable to show their homes, while others are afraid it won’t sell and thus didn’t list their homes at all. US housing market predictions for the longer term will depend on the lingering impact of this Chinese virus. How long will it take for the economy to return to normal? How quickly will the service economy re-open and get people back to work?
Housing Affordability Index – Median Household Income vs Median Home Price
Affordability was already a problem for the US housing market before the coronavirus hit. There was a shortage of affordable housing, driving up the cost of the homes Millennials can afford. This is important since half of all home mortgages are given to Millennials. And they are forced to compete for new housing stock since Boomers and Generation Xers tend to hold onto their homes. The housing affordability index determines the affordability of the housing market by comparing the median household income to the median home price.
The national housing affordability index was 170.0 for February 2020. That was a nearly one percent increase from the prior month and an eight percent increase from a year before. An affordability index of 100 would mean that the average person could afford the average home. An increasing affordability index means more people are priced out of the housing market. The economic fallout of the coronavirus is probably going to make housing less affordable, not more so. The official unemployment rate jumping ten percentage points or more means many people are out of work.
According to the U.S. Bureau of Labor Statistics, the total nonfarm payroll employment rose by 4.8 million in June, and the unemployment rate declined to 11.1 percent. The national unemployment rate in May was 13.0 percent, not seasonally adjusted, up from 3.4 percent a year earlier. These improvements in the labor market reflected the continued resumption of economic activity that had been curtailed in March and April due to the coronavirus (COVID-19) pandemic and efforts to contain it. Payroll jobs (seasonally adjusted) rose in 49 states in May compared to April. Nationally, job growth was 2% in May from April.
In June, employment in leisure and hospitality rose sharply. Notable job gains also occurred in retail trade, education and health services, other services, manufacturing, and professional and business services. All of this adds up to tens of millions of households seeing their income drop, many of them substantially. And home prices will remain steady or drop just a few percentage points. The result is a dramatic drop in the average household income while the housing portion of this equation is almost unchanged. We could easily see the housing affordability index hit 200.
This is one of the more certain housing market predictions. Another factor affecting this equation is the rising average price of new homes. Homebuilders were already prioritizing luxury homes over affordable and/or starter homes. This is why the median home price was rising in 2019. We can expect home builders to focus their limited manpower and resources on luxury homes that will sell for more. And that will worsen the housing affordability index as long as the economic crisis continues.
However, housing market predictions should not affect your decision to buy a home. Instead, you should make the decision to buy a home based on your economic situation. Pessimistic housing market predictions may scare some from listing their home, but many motivated sellers will list their property. That may contribute to a decline in sale prices, but it presents an excellent buying opportunity.
Latest Update On Homeownership & Housing Affordability
According to Realtor.com’s weekly report, the homeownership rate rose to 65.3% in Q1 of 2020. Encouragingly, the under-35-year-old age group experienced the largest jump. Mortgage rates dropped to a new record low, at 3.23% and mortgage applications saw a slight rise. An April Realtor.com survey found out that after spending many long weeks confined in their homes, consumers’ preferences shifted toward bigger homes and more outdoor space for their next homes. The share of home buyers looking at suburban markets near large cities and even across state lines is showing a rebound, as consumers look to a post-pandemic landscape, with cities in the Southeast seeing renewed interest.
Lower mortgage rates made home purchases more affordable in both 2019 and the first quarter of 2020. The 30-year fixed-rate averaged 3.57% in the first quarter of 2020, down from 4.62% one year ago. The average monthly mortgage payment on a 30-year fixed-rate mortgage with a 20% down payment was $995, down from $1,048 a year ago. The current 30-year fixed-rate is averaged 3.15%. When refinancing a $200,000 outstanding loan balance into a 30-year fixed-rate mortgage, at the recent 50-year low average mortgage rate of 3.15%, your monthly mortgage payment would now be $859.
With today’s mortgage rates at historic lows, you can refinance your mortgage to lower your monthly payments and improve your financial situation. With rates at or near historic lows, refinancing could help you save by reducing your monthly payments and reducing the total amount of interest that you pay over the life of the loan. Also, the mortgage rates continue to slowly drift downward with a distinct possibility that the average 30-year fixed-rate mortgage could dip below 3 percent later this year.
The national median existing single-family home price in the first quarter of 2020 was $274,600, up 7.7% from the first quarter of 2019 ($254,900). The national median family income for the United States for FY 2020 is $78,500, an increase of almost four percent over the national median family income in FY 2019. This is about 15% of the median family income of $78,500, down from about 16% one year ago. To afford a typical mortgage payment, a given family needs to spend no more than 25% of income on its mortgage payment (for a 30-year fixed-rate mortgage with a 20% down payment).
The income that is needed for this scenario decreased to $47,760, down from $50,304 one year ago. A household is said to be cost-burdened when it pays more than 30 percent of its income toward housing expenses. As a more extreme measure, a household is said to be severely cost-burdened when it pays at least 50 percent of its income toward housing expenses. In 135 of the 181 metro areas, a family needed less than $50,000 to afford a home in the first quarter of 2020, assuming a 20% down payment. However, in the most expensive metro areas, a given family needed over $100,000 to afford a home.
Will the Housing Market Crash In 2020 or 2021?
The federal government has dropped interest rates in an attempt to stimulate the economy. We can expect a wave of mortgage refinances to save money. Fannie Mae predicts 40% more mortgage refinances in 2020 than 2019. To help borrowers and renters who are at risk of losing their home due to the coronavirus national emergency, the Federal Housing Finance Agency (FHFA) announced that Fannie Mae and Freddie Mac (the Enterprises) are extending their moratorium on foreclosures and evictions until at least June 30, 2020.
The foreclosure moratorium applies to Enterprise-backed, single-family mortgages only. The current moratorium was set to expire on May 17th. Interest rates are already at an all-time low, which allows homebuyers who qualify. That gives potential home sellers hope, though it will take time for these low-interest rates to offset the spike in unemployment and general economic malaise.
According to the Bureau of Economic Analysis (BEA), the real gross domestic product (GDP) decreased 4.8 percent in the first quarter of 2020, according to the “advance” estimate released by the Bureau of Economic Analysis. In the fourth quarter of 2019, real GDP increased by 2.1 percent. Economic activity dropped at the largest annual rate since the Great Recession of 2008 in Q1, with consumers cutting back their spending on necessities.
Most of the loss occurred in the last three weeks of the quarter, as quarantine orders took effect, which underscores the severity of the pandemic’s impact. The decline in the first-quarter GDP was, in part, due to the response to the spread of COVID-19, as governments issued “stay-at-home” orders in March. This led to rapid changes in demand, as businesses and schools switched to remote work or canceled operations, and consumers canceled, restricted, or redirected their spending.
Personal saving was $1.60 trillion in the first quarter, compared with $1.27 trillion in the fourth quarter. The personal saving rate – Personal saving as a percentage of disposable personal income—was 9.6 percent in the first quarter, compared with 7.6 percent in the fourth quarter.
Disposable personal income increased $76.7 billion, or 1.9 percent, in the first quarter, compared with an increase of $123.7 billion, or 3.0 percent, in the fourth quarter. Real disposable personal income increased 0.5 percent, compared with an increase of 1.6 percent.
The full economic effects of the COVID-19 pandemic cannot be quantified in the GDP estimate for the first quarter of 2020 because the impacts are generally embedded in source data and cannot be separately identified. For more information, see the Technical Note on BEA’s Web site.
According to the U.S. Bureau of Labor Statistics, the total nonfarm payroll employment rose by 4.8 million in June, and the unemployment rate fell to 11.1 percent. These improvements in the labor market reflected the continued resumption of economic activity that had been curtailed in March and April due to the coronavirus (COVID-19) pandemic.
What will 2020 be like for buyers? As states continue to open up, mortgage rates trend at historic lows, and jobs recover. If you qualify for a mortgage, you have a more limited selection and prices close to what they were before the coronavirus hit, but you have relatively little competition. In response to the COVID-19 national emergency, borrowers with financial hardship due to the pandemic have been able to receive forbearance, which is a pause or reduction in their monthly mortgage payment. Borrowers can request an additional six months if needed. FHA does not require lump sum repayment at the end of the forbearance.
The latest step in this direction was the announcement of the payment deferral option for borrowers. The Federal Housing Finance Agency (FHFA) announced on May 13 that Fannie Mae and Freddie Mac (the Enterprises) are making available a new payment deferral option. The payment deferral option allows borrowers, who can return to making their normal monthly mortgage payment, the ability to repay their missed payments at the time the home is sold, refinanced, or at maturity.
Before Covid-19, the top 5 markets favoring buyers were Pittsburgh, Rochester, Minneapolis, San Francisco, and Tampa. According to Realtor.com, these markets were cooling off the fastest every year, with a month’s supply of homes up at least 26 percent year over year (as compared to last February).
What will 2020 & 2021 be like for sellers? Expect homes to be slow to sell, and you may have to market it down to move it. Or you may need to wait a few months to see things shift from a buyer’s market to a balanced market. The only exception would be the “affordable” homes that are in short supply. In this case, you face a seller’s market as soon as people are allowed to go out shopping.
Colorado Springs, CO retained the title of the hottest housing market (list by Realtor.com) in the country for the second consecutive month in March 2020. Half of all homes in Colorado Springs were selling in under 28 days — nine days faster than last year, and 32 days faster than the rest of the country. Properties in the metro garnered 2.4 times as many views than the average property around the United States. Colorado Springs was the only metro from Colorado on the list of hottest markets.
Other markets favoring sellers were Phoenix, Salt Lake City, San Diego, Riverside, and Baltimore. These markets are heating up the fastest every year, with a month’s supply of homes down by at least 52 percent year over year (as compared to last February).
What will 2020 & 2021 be like for investors? Many investors who primarily acquired at the courthouse foreclosure auction are migrating to buy bank-owned (REO) homes via online auction, which also provides the added benefit of safety from viral exposure. The added competition for these homes due to moratorium on foreclosures could drive up the prices in the distressed housing market.
While for someone looking to buy a home and then immediately flip it seems a bit difficult because it’s not clear where real-estate prices will go. On the other hand, investors looking to buy a home and hold onto it in the long term, particularly as a rental property, won’t face as much risk. According to a recent survey from Auction.com, 64% of investors who primarily buy investment properties as rentals said they planned to increase or keep their acquisitions, despite the pandemic.
Even though the housing market likely won’t be the cause of the next recession, an economic downturn would still have an impact on the US real estate sector. The housing market in the U.S. could enter a recession in under five years, with Zillow predicting that it will occur in 2020.
The spillover to the housing market will rely upon the profundity, length, and severity of the 2020 recession and, if some parts of the country feel the effect worse than others, some local housing markets could see greater effects.
“The current economic expansion is getting long in the tooth by historical standards, and more late-cycle signs are emerging,” said Scott Anderson, chief economist at Bank of the West, who was among those predicting a 2020 recession.
According to a survey published by WSJ, some 59% of private-sector economists surveyed in recent days said the economic expansion that began in mid-2009 was most likely to end in 2020. An additional 22% selected 2021, and smaller camps predicted the next recession would arrive the following year, in 2022 or at some unspecified later date.
In a research report in which Zillow surveyed 100 real estate experts and economists about their predictions for the housing market, it disclosed that almost 50% of all survey respondents said the following recession will initiate in 2020, with the first quarter of the year referred to the most as to when the recession will start.
The main culprit for the housing recession: monetary policy. The experts predicted that monetary policy will be the deciding factor this time around. In particular, they argued that the Federal Reserve could prompt slower growth if it raises short-term interest rates too quickly.
To put it simply, the US housing market is ripe for investment in 2020, making it a great time to buy an investment property. A multi-generational housing market is creating limited supply and increased competition, driving up prices at the affordable end of the market for the foreseeable future. In hot job markets and communities that fit the youngest generation’s ideals, price increases of 8-15 percent are possible year-over-year.
For everyone else, real estate is appreciating at or just above the rate of inflation. Home price appreciation rate has slowed so far but prices are still rising. While many economists predict that home prices will continue to rise, much will depend on the economy’s ability to bounce back from the pandemic.
Latest Housing Market Statistics
Current avg. home prices and forecast
Housing construction, demand, and supply
Affordability index (nationally) – Median household income vs median home price
Factors affecting the 2020 housing market
Where Is the Housing Market Headed In 2020
2020 and Beyond Forecast
2020 Economic Outlook