2 Part Series, Part 1: Evidence of an Improved Market (Bull Market)
At the beginning of each year, analysists across the country release reports on what they predict the upcoming year will bring in the real estate market. They don’t have a magic 8-ball, but they do assess the trends of the past and present relevant variables to identify where they think the market will go. In this two-part series, we are going to take a look at both ends of the spectrum, reviewing the predictions of both those that anticipate an upward turn in the market next year and those that predict a downwards spiral. To conclude, we will summarize what we think the predictions indicate. However, before we get started, let’s review what happened in the market in 2019.
2019 Real Estate Market Recap
Here are a couple of key points to take away from 2019, each providing insight into how the market will transition into 2020.
- The year started out rough with a government shut-down, but that ended on January 25, 2019.
- President Trump continued to take part in a trade war with China, making economists uncertain about the U.S. economy. In all, the trade war had minimal noticeable impact on the real estate market.
- In 2019, the fed cut rates 3 times, resulting in a current benchmark rate now in a range of 1.50 percent to 1.75 percent.
- With that being said, interest rates remained desirable to potential buyers.
- The United States’ economy remained strong with unemployment hitting record low levels.
- The stock market witnessed 52-week highs across many sectors.
- There continued to be low inventory in the housing market, resulting in competitive home values.
- More buyers entered the market as millennials transitioned into new phases of their lives, displaying interest in buying homes.
- Baby boomers reverted to living at home instead of moving into retirement communities, reducing the number of homes being placed on the market.
- Buyers continued to seek eco-friendly solutions in their homes, causing an influx in innovative home designs…Fixer uppers are not as desirable as they once were.
Each of these factors into the predictions being made about 2020. So, let’s delve in.
2020 Will Remain A Bull Market
A bull market, for those who are unaware, describes a market that is on the rise and is economically sound. We have, in general, been in a bull market since the end of the last recession. The economy, the real estate market, and the stock market have all continued to improve their positions compared to 2009. Further, many economists are predicting that this trend will continue due to the factors below.
Interest Rates Remain Low
According to Greg McBride, CFA and Bankrate chief financial analyst, “The Fed is most likely to do nothing, leaving benchmark rates unchanged…The Fed has set a high bar for raising interest rates, saying inflation would need to rise in a significant and sustained way – which ranks somewhere between the seas parting and pigs flying in terms of likelihood.”
In essence, interest rates are not expected to rise for homebuyers, leaving plenty of opportunity for buyers to borrow money for cheap, making it an optimal time to buy.
VC Will Focus on the Real Estate Market
When there is money being invested into a sector, it tends to indicate the specialists believe that that specific market will continue to be on the rise. As for real estate, venture capitals are expected to fund new real estate models in 2020. Although they may be more cautious, given the uncertainty at hand, they are still investing in new technologies that will enhance the buying and leasing processes. “Proptech money will follow big data start-ups that use artificial intelligence to automate various components of the real estate experience, from AI leasing assistants to mobile buying platforms. Virtual and self-guided tours will become more of a part of both the leasing and buying experience, and start-ups that develop these technologies will receive additional attention.”
Construction Will Remain Steady with Developers Focusing on Starter Homes
Continuing with the 2019 trend, more millennials are seeking the opportunity to buy homes; however, this socially and environmentally conscious generation is interested in acquiring homes that are eco-friendly. Therefore, developers are investing in building starter homes. They are less focused on custom-made homes and more focused on revamping old homes to make them suitable for this next generation. According to reports, “The economy continues to perform reasonably well, and unemployment has stayed near record lows as companies continue to need highly skilled and highly educated workers. It just so happens that Millennials meet these qualifications and are also now getting married, starting families, and looking to take part in the American dream of homeownership.”
Home Values Will Rise
With the above-mentioned contributions, including more buyers entering the market, low interest rates, and continued construction of homes, it is expected that home values will rise in 2020. Homes are expected to enter bidding wars as buyers get more aggressive and sellers overprice their homes on the market. Matthew Gardner, chief economist at Windermere Real Estate in Seattle, expects sales to rise 2.9% while prices will rise roughly 3.8% – overall, demand will continue to exceed supply.
In conclusion, according to Josh Stech, CEO , and Co-Founder of Sundae, a site that helps sellers get a fair price for their house, “We think the housing market will remain strong for the most part in 2020, as low-interest rates will keep demand high for new mortgages…We also think there will continue to be shortages of new housing in many markets, which will contribute to overall price growth.”
With continued trends upwards, there is no indication that the housing market will experience a bust. Instead, it will continue to be healthy and promote activity in all markets. However, with that being said, we can expect the market to remain a seller’s market, making the homes available slightly more expensive than market norms.
These analysts anticipated a bull market in 2020; however, not everyone agreed. In Part 2 we will review those that expect a bust in the 2020 market, and provide insight on what you can do next.