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Looking into the crystal ball – 2020 housing forecast

(REAL ESTATE BIG DATA) Housing in America is about to change significantly as the millennials begin purchasing their first house and the market changes to meet them.

Housing neighborhood

In 2020, Millennials will be taking on the majority of home mortgages and shape the housing market, that according to Realtor.com’s national housing forecast for 2020.

The report dispels the myth that Millennials want walkability and avocado toast. The report states that in 2020 the group will take on more mortgages than Boomers and Gen X – combined. And, they will be plunking down serious cash, with larger down payments than ever.

While Millennials will be buying homes in the burbs, willing to drive the kids to school, and shaping the market, in general the forecast is for a tight market, with a flat increase in sales.

The coming year is going to be a mixed bag.

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Economy and Global Market Influence

During 2019, consumers were still feeling good about the economy, leading to a 4.6% annualized gain in consumer spending, yet businesses were not as confident by the second quarter and resulted in a 1% drop in investment. Trade disputes between the US and its trade partners resulted in an escalation in tariffs and increased uncertainty.

At the start of 2019, the Federal Reserve initially tightened its belt because the economy seemed to be on an expansionary track, but it switched tactics later in the year as it became clear major economies around the globe were slowing and as a result cutting rates and purchasing assets to boost output, according to the report.

In 2020, GDP growth is expected to be modest with a 1.7% advance, according to the report. As housing expenses continue to rise, consumers will spend less on non-housing related purchases. Slowing consumer spending, coupled with global uncertainty and a volatile world market is expected to cause businesses to trim employment goals and control costs. Unemployment is expected to rise slightly from 3.6% to 3.9% by the end of 2020. Meanwhile, inflation is expected to remain restrained with a 2.0% year-over-year increase.

Housing Supply

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Home buyers were searching for more affordable housing choices in 2019 and as a result there was a housing buildup around the country, with the number of homes available rising 7% on a yearly basis, the fastest pace of growth since 2014. As the year wore on buyers became frustrated with the costs of housing, but then mortgage rates dropped in March and many buyers were able to get into the market thanks to the shift and the reliance on financing, according to the report.

“In 2020, we expect inventory to struggle to grow and could instead reach a historic low level. The yearly declines are likely to be moderate and range between 1%-to-5 % for most of the year. A steady flow of demand, and robust-yet-declining seller sentiment will combine to ensure there is no surplus adequately-priced inventory,” the report stated.

Demand for housing will remain strong in 2020, particularly in the entry level. Millennials will be turning 30 and will make up the largest group entering the market. And, they will take more than half of all mortgages in 2020, the Realtor.com forecast stated.

Home sales are expected to remain flat in 2020, even as demand remains strong. With consumers sensing a cooling economy in the coming year, it’s expected that home sales will dip 1.8%, as supply remains short, price growth is going to remain restrained. The decline in sales will be tied to flat price growth. Prices are expected to rise 0.8% in 2020.

Buying in 2020 is going to present a mix for consumers as there will be more opportunities to find new construction at flattened prices, yet it will depend on the market they search and finding one with fewer barriers to entry. The report describes it as “Marco Polo” while it may be easier to qualify for loans, it may be harder to find a home.

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Sellers are going to need to price it right to sell it. Homebuyers are on the hunt for affordable properties, so those homes in a higher price range will need to relax prices or provide incentives to encourage sales.

The trend of searching for affordable housing will continue as Millennials leave the urban centers behind for homes for families and Boomers retire to sunnier communities, with lower taxes and lower cost of living. Texas, Arizona and Nevada could benefit from homebuyers looking for affordability. Meanwhile, Georgia, Florida and the Carolinas may see more relocations from folks leaving the expensive and cold Northeast behind.

Mary Ann Lopez earned her MA in print journalism from the University of Colorado and has worked in print and digital media. After taking a break to give back as a Teach for America corps member and teaching science for a few years, she is back with her first love: writing. When she's not writing stories, reading five books at once, or watching The Great British Bakeoff, she is walking her dog Sadie and hanging with her cats, Bella, Bubba, and Kiki. She is one cat short of full cat lady status and plans to keep it that way.

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