Seven Real Estate Predictions for 2020

December 15, 2019

If there’s one thing predictable about the real estate industry, it is that it is unpredictable. Industry insiders do their best to anticipate how the national and regional housing markets will behave based on economic indicators and demographics, but local market conditions drive home values and the pace of sales.

“Real estate is hyperlocal, and it will be even more so in 2020,” says Gary Scott, president of Long & Foster Real Estate. “You can’t ever make a general statement about the ‘market’ because there are so many unique factors in each area. While the big story of the past few years has been the challenge of low inventory, that challenge varies—it’s more pronounced in some markets, and even in some neighborhoods, than in others.”

Conversely, the other big story in real estate—low mortgage rates—will continue to be a tailwind for housing.

“Mortgage rates are likely to stay at or around 4% in 2020,” says Larry “Boomer” Foster, president of Long & Foster Real Estate. “The impact of continued low rates is that people feel bullish about the housing market. Even though consumers are used to low mortgage rates, we saw a rush to buy this summer when rates dropped a little bit because buyers are still rate sensitive.”

Beyond inventory challenges and low rates, Foster and Scott identified these additional trends that are likely to impact the housing market in 2020.

Consumer confidence will remain strong. Consumer confidence is one of the most important leading indicators for the housing market since it requires optimism to make a long-term commitment to a house.

“The University of Michigan’s Consumer Confidence Index has averaged around 97 over the past two years,” says Foster. “Anything over 90 is positive. Even when it dipped a little last summer because of concerns about global trade issues and Brexit, it surged back quickly.”

Election jitters will shift the Washington, D.C. region’s market. The idea that Washington’s housing market is transformed by elections, particularly if the party in charge changes, is a lingering misconception, says Scott. “People who come here to work in politics tend to stay here,” he says.

However, a presidential election year does have an influence on the market, says Foster. “We often see downward pressure on consumer confidence during the fall before a presidential election because people don’t know what to expect for the next four years,” says Foster. “That often leads to a slowdown in the fall and then an increase in sales in December.”

Inventory issues will continue to affect buyers looking for low to mid-priced homes. In the Long & Foster markets from North Carolina to New Jersey, says Foster, it’s a “tale of two marketplaces.” The lack of listings is severe for mid-priced and lower-priced homes where demand outpaces supply. The luxury market, however, has plenty of inventory to meet demand.

“There’s nothing that indicates the inventory challenge will be significantly alleviated this year, in part because of the good news that people are aging in place and living longer,” says Scott.

New construction, especially of starter homes, may slow. Nationwide, the number of permits to build new single-family homes declined in 2019 compared to the year prior, and it is likely to decline again in 2020 and 2021, says Foster.

“There’s plenty of demand for new homes, but the skilled labor shortage, the high cost of land and materials, and the regulatory environment make building expensive,” he says. “That’s why many developers build more expensive homes rather than starter homes, too.”

Price appreciation will remain healthy. Scott anticipates prices will rise 2% to 6% in 2020, which is a solid gain but not an indication of a bubble. “Given the inventory challenges buyers face, you might expect to see an extreme level of double-digit appreciation, but that’s not happening—and that’s good for the market,” says Scott.

Even in the unlikely event of a recession, the housing market is likely to remain strong. Neither Foster nor Scott anticipate a recession in 2020, but even if there were a mild recession, they don’t believe it would hurt the housing market. Price appreciation typically weakens a little during a recession, says Foster, but not much. Additionally, some investors turn to real estate during a recession to avoid stock market volatility, he says.

Home sales will be brisk, particularly for low- to mid-priced homes. The number of home sales should continue strong in 2020, says Foster.

“It’s still a seller’s market for mid- to low-priced homes,” says Foster. “In the mid- to upper-price range, buyers will find more options and a slightly slower pace for sales that will give them more time to choose a home.”

What does this mean for buyers and sellers?

Sellers should be aware of the potential impact of the 2020 election on the Washington area’s market. “We’re likely to see the spring market start even earlier and the summer market will probably be a little stronger than usual,” says Foster. “We’ll then see a lull in the early fall and a pick-up in sales in November and December. Sellers should plan to list their homes for sale early and expect a good market from January through July. After Labor Day, it will be a tougher sale until after Election Day.”

Scott says buyers and sellers can expect to see more distractions in the real estate industry from new companies and new techniques, such as iBuyers, who offer instant online offers to homeowners.

“Traditional real estate companies will become even more important, with the role of the real estate agent enhanced,” says Scott. “Consumers will need even more help navigating the system and will rely more than ever on a real estate agent to represent them during every stage of a transaction.”

Whether you’re looking to buy or sell in 2020, a Long & Foster Real Estate agent and representatives from their affiliated family of companies such as Prosperity Home Mortgage can help you find and finance your move.