2020 Real Estate Outlook: Expert Predictions For Mortgage Rates, Home Prices…

As most of us know, the 2019 housing market has been one of low rates, high demand and limited supply—particularly on the lower-priced end of the market.

Will 2020 be more of the same? According to experts, yes and no.

Mortgage rates will stay low—or maybe go lower.

If you have been paying attention, you know that mortgage rates currently sit at 3.75%-3.95%, according to Freddie Mac’s most recent numbers—nearly a 1% difference from the monthly average a year ago. The drop in rates caused a surge in refinancing over the last few months, and purchase activity ticked up as well.

According to Odeta Kushi, deputy chief economist at title insurance and settlement services provider First American, there’s “emerging consensus” that rates will remain low next year—likely somewhere between 3.7% and 3.9%, she says.

Even forecasts from Freddie Mac and the Mortgage Bankers Association back this up. Amazingly, both predicting 2020 rates within this range. Fannie Mae actually predicts rates will clock in even lower, moving between 3.5% and 3.6% throughout the year.

Thanks to these continued low rates, refinancing should remain a popular choice in the new year. And for homebuyers, they’ll be able to afford more house than they would have otherwise. That also helps home sellers as there are more buyers vying for their home.

Prices will keep on rising.

Home prices will continue their climb upward, according to experts, largely thanks to tight inventory and high demand.

According to the latest home price forecast from property data firm CoreLogic, home prices should tick up by 5.6% by next September—up from the just 3.5% jump we saw this year. Right now we aren’t seeing a ton of new listings. Without more listings coming on the market, there will be more competition starting off in early 2020 and that will lead to more price pressure.

The problem will be worse on the lower end of the price spectrum. According to Ralph DeFranco, chief economist for mortgage insurer Arch MI, entry-level home prices will rise higher than incomes next year—and disappointing construction numbers will only compound the issue.

“Low interest rates and a shortage of starter homes will continue to push up prices,” DeFranco said. “This is especially the case for lower price points, since builders have tended to focus on more expensive, higher-profit houses and less on replenishing low inventories of entry-level homes.”

It seems the price growth may continue beyond 2020, too. Data from Arch MI shows the chance of home price declines at a mere 11% for the next two years. There are currently no states or metro markets projected to see prices declines in that period. There’s a chance that increasing construction may offer some relief in the inventory department. Last month’s residential construction report from the Census Bureau saw building permits and housing starts both increase over the year. At the same time. builder confidence was at a 20-month high, according to the National Association of Home Builders. Still, it may not be enough to meet the needs of today’s buyers.

As for building new homes, builders have a reason to be cautiously optimistic, given pent up demand stemming from a strong economy, lower mortgage rates and continued wage growth. However, building pace still lags behind historical standards, and it will likely take months before we can begin building at a pace that will support the demand.

Millennials will keep up their homebuying streak, while Boomers hold up inventory.

Data from Realtor.com shows Millennials made up a whopping 46% of all mortgage originations in September—up from 43% one year prior. Meanwhile, shares of Baby Boomer and Gen X mortgage activity declined.

It’s no wonder, either. Millennials rank homeownership as one of their top goals in life—higher than even marrying or having kids—and with interest rates low and incomes up, it’s the right time to buy a home for many.

The suburbs will be a big draw thanks to Millennial demand.

Depending on location (such as Bellingham/Ferndale/Blaine/Lynden) As home prices skyrocket, cash-strapped Millennials are looking toward more affordable places to put down roots—namely smaller, suburban towns on the outskirts of major metros like Seattle. Many people have jobs that allow for “telecommuting”, that Millennials take advantage of by deciding to purchase here in Whatcom Co.

This trend has also led to an uptick in “Hipsturbia” communities—live-work-play neighborhoods that blend the safety and affordability of the suburbs with the transit, walkability. Think Fairhaven, or downtown Bellingham and Lynden.

What should you do? 

Every person has different goals, want and needs when it comes to housing. A very rare occurance has been happening here in Whatcom County in terms of who the current market favors. There are always market trends, usually described as either “buyers market” or “seller market” labels. On one hand, home prices have continued to go up since the housing rebound of 2014. That would be a normal indication of a sellers market. But a funny thing has happened due to different economic factors, and that is that the interest rates have held steady at historic lows. They have been consistantly held between 3.5%-4.5% for the last couple of years. This means that a buyers purchase power has never been higher.

Are you curious about how you fit into the current Bellingham, Lynden, Ferndale and surrounding area housing picture? Please contact me at 360-988-1821( or email me at patrickjohnsonrealestate.com). I can assist in all your real estate questions, including getting you set up with fantastic lenders for qualification questions, buying and selling tips, and home listing marketing plans.