Market Outlook for 2019 and 2020: Trends to Watch
Categories: News, Real Estate Appraisal, Trends
The housing market across the country, and especially in Boston and New England, is experiencing a growth trend that’s accelerated over the last few years. The median home and condo prices in the U.S. have dramatically risen, reaching a record high in early 2019. Despite the continued appreciation, both real estate economists and the general public are starting to worry about the shadow of a second recession (the dramatic downturn of 2007 still on their minds). With this apprehension in mind, we’ll discuss some of the things to expect from the housing market in the second half of 2019, going into 2020.
The Housing Market Is Going Strong… for Now
The year 2019 started with a bang, and this wasn’t even news. Ever since 2012, home prices have been on the rise, reaching unprecedented numbers in some markets. The Greater Boston Area is a good example: in March 2019, the median price for single-family homes hit a record-breaking $377,000. According to the latest CoreLogic HPI Forecast released in May 2019, home prices have increased by 3.7% year over year from March 2018. This trend may continue into the next year with home prices expected to increase by 4.8% on a year-over-year basis from March 2019 to March 2020. Also, the Case Shiller Home Price Index in the United States reached an all-time high of 215.68 Index Points in April of 2019.
There are several other encouraging factors. One of them is the arrival of a new pool of homebuyers (the Millennial generation) on the housing market. Despite their reputation for refusing to settle down, Millennials—compared to older generations—account for the greatest share of primary home loan originations. This number should continue to increase as more and more members of this age group reach their prime home-buying years. Low interest rates continue to support strong demand, and experts anticipate these rates will remain low for the foreseeable future.
After estimating in late 2018 that 30-year mortgage rates could reach 5.1% for 2019, Freddie Mac revised this estimate down to 4.3% and projects it will remain low in 2020 at 4.5%. Finally, unemployment rates are minimal as well at 3.7% in June 2019, a minor increase from a 49-year low of 3.6% in the previous month.
Housing Market Growth May Be Slowing Down
The housing market is starting to show signs that the unbridled growth of the past few years may be coming to an end. This will be a relief for aspiring buyers burdened by dwindling inventory, high prices, and competition, particularly in hot markets like the Bay Area and Greater Boston.
The number of listings available on the market has progressively improved in recent months across the country, with unsold inventory reaching a 4.3-month supply at the current sale pace. This is an improvement from the 4.2 months of supply of the previous month, but still a long way shy of the six months’ supply required in a balanced market. Although house prices remain on the rise, they are increasing at a slower pace than they have in recent years.
This gradual upturn in the quantity of available housing does not necessarily mean that new buyers will find suitable housing wherever they want, as affordability remains a major concern in many markets. The San Francisco Bay Area, Seattle, Los Angeles, San Diego, and Boston are still out of reach for most buyers despite an increase in inventory and a reduced number of bidding wars. The rise in stock is not always due to the appearance of new listings, but also the result of properties sitting on the market. In New England, the increase in the number of listings—especially in the single-family home market—is barely keeping up with the demand boosted by favorable mortgage interest rates. The best-faring markets in this area are the ones that remain relatively affordable for most buyers, notably Rochester, NY.
Rising Prices and Diminishing Affordability
The real estate market is by nature cyclic and it is clear that the housing market will not maintain this pace in the long term. As a result, economists and homeowners are wondering how sustainable the current housing trend is, with numerous experts pointing to 2020 as the onset of the next recession.
In many cities across the country, housing prices are back to (if not above) their pre-2008 levels, and potential buyers are struggling to secure reasonably priced housing. This affordability issue is a key reason many industry stakeholders believe the real estate market is due for a correction, particularly in inflated markets.
It is unlikely that we will see a real estate crash comparable to the one we experienced a decade ago. Firstly, lending requirements (which were one of the critical factors of the 2008 financial crisis) are very different today. Also, the market’s key players are continually learning from past mistakes; banks now apply strict standards to select potential borrowers. Appraisers who reported feeling pressured by lending institutions in 2007 have been working towards establishing appraiser independence and higher education requirements to improve industry standards.
Should You Be Worried About the Housing Forecast?
Trends indicate that the market will slow down in the short term–to the relief of home buyers dealing with the listing shortage and high prices. However, the chances for a 2008-like real estate crisis are remote. If an economic crisis takes place, it will most likely be due to political and financial factors rather than the state of the housing market.
Where do you think we’re headed?
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