The spring months are crucial for the housing market as it’s a prime time for sellers to list their homes for sale and for buyers and real estate investors to hit the market to buy property. According to NAR, almost 40% of annual sales take place from March through June. However, while the US housing market 2020 was headed for a hot spring season, it may not be so healthy after the coronavirus pandemic.
COVID-19 is shaking the global economy, killing international trade, and making the stock market forecast grim. All of this has affected and changed the tone of this coming spring real estate market. People are asking: Is the housing market about to crash? What is going to happen to house prices? Is 2020 a good time to invest in real estate concerning everything going on? Keep reading as we answer these questions and give you the latest US housing market predictions for the next 5 years.
Related: The Impact of the Coronavirus on the US Real Estate Market
#1. Existing Home Sales Will Drop
According to housing experts, the first real estate market forecast is that the economic distress caused by the coronavirus pandemic will slow home sales. According to the National Association of Realtors, existing-home sales dropped 1.3% from the previous year. NAR also said that it forecasts a 10% near-term drop in home sales in the next month, compared with the period before COVID-19 became prominent. According to research, home sales will be held down due to worries from both the buyers’ and sellers’ sides.
When people are concerned about the overall economy, their jobs, and their ability to pay their bills, it makes sense that they would be less likely to want to buy a house. This is especially true for those nearing their retirement and the stock market volatility wiped out a big chunk of their 401(k) accounts. On the other hand, sellers are choosing not to list their homes for sale until the crisis is over, fearful that they won’t get a good price due to the reduction in demand. In a survey of its members about the coronavirus, NAR said that 11% of respondents reported lower home-buyer traffic and 7% reported lower home-seller traffic.
Overall, housing market predictions 2020 suggest slow activity in the spring real estate market due to the slowdown in the US economy caused by the coronavirus. Meaning, it’s unpredictable whether the spring season for the housing market is going to be a seller’s market or a buyer’s market as both parties are delaying listing/buying decisions.
#2. Housing Inventory and Construction Will Slow Down
Nationally, the biggest drag on the US housing market has been a lack of housing supply, especially at prices that first-time buyers can afford. According to Realtor.com, January witnessed a 13.6% year-over-year drop in inventory (the largest year-over-year decline for that month since 2012). Realtor.com’s newly released data reveals that the US real estate market 2020 continues to tighten as inventory dropped 15.3% year-over-year nationally in February. Their housing market predictions in this regard are that inventory will continue to evaporate and it’ll be even more challenging for buyers to find a home.
More data from the site also shows that the number of homes for sale fell by more than 20% in half of the nation’s 50 biggest metro areas compared with a year earlier. Metros which saw the biggest declines in housing inventory were:
- Phoenix-Mesa-Scottsdale, AZ (-42.7%)
- San Diego-Carlsbad, CA (-36.6%)
- San Jose-Sunnyvale-Santa Clara, CA (-36.2%)
- Denver-Aurora-Lakewood, CP (-35.9%)
- Seattle-Tacoma-Bellevue, WA (-33.7%)
Note: Of the 50 metros, only two saw an increase in inventory over the year. These are Minneapolis-St. Paul-Bloomington, MN-WI (+12.2%) and San Antonio-New Braunfels, TX (+2.6%).
Furthermore, research shows that unsold inventory is at a 3.1 month supply. This trend of declining supply is strong as we’re now entering the 6th consecutive month of YOY inventory declines. Moreover, research shows that there isn’t enough new construction to satisfy the high demand from buyers. According to data from the US Census Bureau and the US Department of Housing and Urban Development, residential housing starts dropped 1.5%. The chief economist of National Association of Home Builders, Robert Dietz, recently wrote:
While we are seeing near-term positive market conditions with a 50-year low for the unemployment rate and increased wage growth, we are still under-building due to supply-side constraints like labor and land availability.
As builders can’t get financing from banks due to economic uncertainties, home building will further drop during the spring real estate market. Meaning, we can say that inventory shortages will continue to grow for our Q2 2020 US housing market predictions. With not enough new construction and homeowners staying put, the problem will be finding homes for buyers. Scarcity in housing stock, especially at lower price ranges, indicates that once the coronavirus pandemic is over, the real estate market forecast for the next 5 years will include intense competition among buyers.
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#3. Mortgage Rates Will Remain Low
Housing market predictions 2020 indicate that another reason why the real estate market might become more competitive is due to the low mortgage rates combined with the lack of homes for sale. Last week, the average rate on a 30-year fixed-rate mortgage fell to 3.29%, the lowest level on record according to Freddie Mac. Mortgage rates are closely linked to yields on the 10-year Treasury, which hit an all-time low earlier this month. The Federal Reserve announced it would cut the federal fund rate by 1%. This was the second cut in just two weeks and it resulted in a 0% interest rate.
Related: What the 0% Interest Rate Means for Mortgage Rates
The last time the Fed lowered interest rates to 0% was in 2008 to fight the negative effects of the Great Recession on the US economy. This time, the Fed is cutting that rate in an attempt to tackle the negative impact of COVID-19 on the US economy and encourage home sales. However, some experts believe that even rock-bottom borrowing costs might not be enough to attract buyers amid the current uncertainty. Economists are tamping down earlier housing market forecasts that cheap rates and a strong job market would boost the spring real estate market 2020 following years of sluggish growth.
Overall, experts at Redfin predict that mortgage rates will remain low, hovering around 3.8%, and will likely not fall below 3.5% even if the economy weakens. If the economy strengthens, on the other hand, mortgage rates aren’t likely to go above 4.1%. For real estate investors looking to buy rental property in 2020, this could mean now is a good time to hit the market. With decreasing demand from homebuyers, sellers might be desperate to accept any offer. You can then turn the property into a traditional long-term rental as these are the best real estate investments to make money in the business during the spread of COVID-19.
#4. Home Prices Will Rise
The historically low housing inventory combined with falling mortgage rates naturally helped push house prices higher in most US cities. Some real estate forecasts see this trend continuing as we approach the spring season for the housing market. According to Realtor.com, the median US listing price grew by 3.9% YOY in February to $310,000 which is a slight acceleration from previous months. On average, home prices in the largest metros grew by 6.5% and the highest YOY median listing price growth is seen in the following cities:
- Philadelphia-Camden-Wilmington, PA-NJ-DE-MD (+17.3 percent)
- Rochester, NY (+15.0 percent)
- Pittsburgh, PA (+14.3 percent)
However, other US housing market predictions 2020 say that it’s more likely that house prices will decline in some areas as the economic distress will slow the real estate market. With homeowners resisting selling and fewer and fewer buyers venturing out to buy properties, home prices will likely flatten, or slightly fall, after years of gains, according to housing experts. Of course, housing markets that have experienced the biggest price gains are the ones that will more likely see a downturn as overvalued markets are more vulnerable to price declines. Cities like San Francisco and Seattle for example, where house prices were pushed up in recent years by the tech industry and its high-paying jobs, are more likely to see a downturn compared to the cheaper, more affordable markets.
Related: Invest in the 5 Cheapest Housing Markets in 2020
Will the US Housing Market Crash?
Last year, there were fears that a trade war with China or the fallout from Brexit would ruin the US economy. However, it’s the unforeseen coronavirus outbreak that led the president of the United States to declare a national emergency, making a global recession seem all too possible. Although COVID-19 had already affected the stock market, people now are anxious that a housing market crash may be near. And with the 2020 presidential election on people’s minds, everyone wants to know when’s the right time to sell or buy real estate. So, what are the US housing market predictions 2020 in this regard?
As mentioned, the coronavirus is already affecting home sales as sellers don’t want people going through their homes. If the virus leads to an extended slowdown in the US economy, this will negatively affect the housing market. It would lead to rising unemployment and lower income which, in turn, would result in missed payments. That’s what caused the mortgage crisis that sparked the last Great Recession. A slow economy would also increase debt-to-income ratios, meaning fewer people would be qualified to buy homes, and this would lead to a crash in demand. All of this is certainly terrifying to those whose memories of the Great Recession are still fresh.
However, many housing and financial experts believe that this looming real estate downturn may not even develop into a recession. They also say that the coronavirus outbreak probably won’t cause a nationwide housing market crash in 2020 unless it dragged on for many months. Danielle Hale, the chief economist at Realtor.com, says:
I don’t expect the slowdown to be like the last recession where prices fell. There are more than enough buyers out there to keep home sales from slowing in any major way.
Experts also ensure that if employment stays high, most people will still be able to make their mortgage payments and hold on to their homes. The US housing market isn’t as fragile as it was during the last crash when reckless lending practices created the subprime mortgage crisis. Nowadays, credit requirements are much stricter which has certainly created a more stable mortgage industry and, thus, a stronger housing market. Overall, experts’ housing market predictions include that the real estate market could rebound fast – maybe within a quarter or two – or even as soon as the economy improves.
The Bottom Line
It’s pretty obvious that the current situation that the country is experiencing now with the coronavirus is going to have an effect on the housing market and the spring real estate market forecast. It’s important to remember, though, that a virus can’t cause the real estate market to crash. That will only occur due to major changes in supply and demand. A lot also depends on consumer confidence and how people react to the situation. So while worries of a housing crash persist, experts believe that housing hungry millennial middle class and powerful economic performance will outweigh any housing crash indicators.
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