With a new year just beginning, a lot of people are anxiously waiting to see what the real estate market, housing in particular, holds in store. There are some faint signs that the market is “softening,” so both buyers and sellers are panting to know whether 2020 will be a buyer’s or a seller’s market. The only way to make that prediction with any accuracy is by examining market trends and looking carefully at the trajectory. So here’s what buyers and sellers should know about the real estate market in 2020.
Inventory May Be Stabilizing
The past few years have seen a seller’s market because inventory has been fairly low. With fewer houses on the market, buyers have fewer options and, as a result, less negotiating leverage, which tends to drive prices up.
“Zillow reported the housing inventory of homes available for sale has fallen YOY in each of the past 42 months. As a result, buyers had to compete for a limited pool of properties which, in effect, had helped in keeping upward pressure on house prices. Naturally, this had contributed to putting sellers in the driver’s seat for the past several years at the expense of a buyer’s market.” But now this trend seems to be making a turn in the other direction.
The rate of inventory decline began to slow in 2019. This suggests that inventory may begin to stabilize in 2020 – and possibly increase after that.
There does remain one area of the market where things remain the same, according to industry watchers. “[W]”hile overall inventory has started to creep up this year, there are still inventory challenges on the low-end price points. Homebuilders are simply not increasing the supply of these properties. There is a plentiful inventory on the upper-end market, so the housing shortage is really on the mid-priced and low ends.”
Price Growth and Appreciation Slowing
Another area of the real estate market in 2020 that will see a continuing trend reversal is that of growth in home prices and appreciation.
For several years now, home prices and appreciation rates in most major markets have been noticeably above historical norms, with both experiencing prolonged periods of acceleration. “According to Zillow, home values in the US housing market appreciated at a faster pace in July 2018 than in July 2017. Add to this the year-over-year inventory fall and you’ll get why sellers had the upper hand in the previous two years.”
But in 2019 things began to change on this front. “After 7 straight years of increases,” the industry experts aver, “the median price of newly built homes has finally moderated. . . . [F]or the first time in a long time, we’restarting to see prices correct.” In addition, the growth in appreciation rates has slowed in almost all major metro markets and is projected to remain steady throughout 2020.
Bear in mind, though, that these increases continue. It’s just that they are doing so at a more moderate rate.
Interest Rates Dropping
A truly important trend in the real estate market in 2020 is the dropping mortgage interest rates. This could be one of the most hopeful signs that 2020 will usher in a buyer’s market – or not.
According to Freddie Mac’s latest Primary Mortgage Market Survey, “the interest rate for a 30-year fixed mortgage loan dropped (yet again!).” In addition, “interest rates of all types of mortgage loans have actually been following a downward trajectory for most of 2019. Rates began the year at 4.5% and have dropped to 3.49%,” the lowest since October of 2016.
But the strange thing in all this is that not a lot of buyers seem to be taking advantage of these lower rates. A National Association of Home Builders survey found that only 12% of adults planned to buy a home in the coming year. “That is down from 14% in 2018 and the third consecutive year-over-year decline.” Expert speculation has it that although mortgage interest rates are down, that hasn’t affected down payments, and so many people still find it difficult to enter the housing market.
The Kind of Market
So will the real estate market in 2020 be a buyer’s or a seller’s market?
While it’s been a seller’s market for the past few years, the conditions that have made it so seem to be easing up a bit. That is, as we delineated above, inventory is increasing, price increases and appreciation growth are slowing, and mortgage interest rates are dropping. So it does look better for buyers, but still with many advantages for sellers.
Here’s how those in the know describe the real estate market in 2020: “[W]hile these trends are noticeable, it’s far too soon to call the US a buyer’s market. Meaning, the US housing market might be described as a seller’s market – but not a traditional one.”
What this cryptic pronouncement seems to mean is that while sellers still have a slight edge, buyers are gaining ground with more favorable conditions. So it’s looking good for both sides, and (hopefully) everybody wins.
A Good Agent Becomes More Valuable
So that’s the environment for the real estate market in 2020 – a non-traditional seller’s market where conditions are beginning to favor buyers a little. And this seems to indicate that a good real estate agent will become an even more valuable asset (for both buyers and sellers) in 2020. Find out how our agents can help you make sense of the swirling flux of the real estate market in 2020. Contact us today!