Economists’ prediction for 2020 was quite optimistic—particularly the housing market—although not really outstanding, but this means good news still for renters and homebuyers.
That is if their forecasts are true.
Mortgage rates have just risen to their highest level after many years in 2018. Because of this, many experts believed another “taper tantrum” may happen the same as that in 2013.
The country’s huge mortgage institutions, Fannie Mae and the Mortgage Bankers Association, also forecasted that sales and housing activities are going to drop because of higher mortgage rates but will eventually improve as soon as the Americans get used to higher rates.
People from the housing real estate market are the most optimistic people. But tying your income to a 30-year debt when you buy a house is always easier said than done.
As it turned out, the experts were only half right with their forecasts. True to their words, the mortgage rates remained high in the first half of 2019, and that did apparently cause the sales to slow down. But then, through most of the remaining months of the year, the mortgage rates have dropped to a record low.
The drop in the mortgage rates in turn resulted in a boost in home sales. But will it keep up with the economy experts predictions?
Mortgage Rates Will Stay Low
Most of the housing economists were expecting for the mortgage rates to stay below 4% in 2020.
The Federal Reserve has made it a point to create a predictable pattern so it is easy to forecast the future. The Fed had cut the rates in October last year, and since then, it has observed improvement in the U.S. economy. It also made it clear that it will not raise the rates back until there is a consistent rise to inflation. While the central bank does not directly control the home loans interest rates, the mortgage markets certainly move in accordance to the central bank’s moves itself.
Further hike in interest rates is unlikely to happen because the fact is, the central banks worldwide are cutting them down rather than raising them. This is certainly a good news for renters. The affordability of home buying will be high as many people will be interested in buying their own homes because they would then be able to afford mortgages.
However, a potential trade between China and the U.S. could trigger the rates to climb up. Should the two economic powers arrive at a substantial deal, the markets could improve. Along with that, inflation rate could go high as well and may prompt the Fed to hike rates which will also cause the mortgages to rise.
According to the National Association of Home Builders, the builder’s confidence has reached a history high since 1999. Home constructions continued to increase and closed 2019 pretty good. Of course, the major factor of this was the low mortgage rates.
Baby Boomers are Retiring, Millennials are taking the Lead
Another huge factor is the retirement of a lot of the baby boomers. Many in this generation are now looking for communities to retire prompting construction of spaces to take place. While those who choose to stay and age in the same place they have lived in for years, contribute to keep the low inventory of homes.
Should there be a recession, the entry-level properties will serve as a cushion to the housing market because the builders are shifting towards building more entry-level homes rather than luxury properties.
With the Millennials on the lead in purchasing homes, the builders sure know how to appeal to this age group and shifted to building low cost properties with more open space.
Supply of Homes is still Low…
The companies in big cities like Los Angeles, want their employees to afford homes near their offices so they have invested in housing projects that are affordable. This means, the majority of the working generation of homeowners actually tend to stay in their homes longer which results in less inventory of homes in the market.
The trend of low supply may not be favorable for the housing industry in 2020. Although, some economists say that gradual growth in home sales and prices along with low mortgages will offset the negative impact of the inventory crisis.
On the contrary, other experts expect sales to drop in 2020 despite the high number of demand. The gradual rise of home prices may cause the low supply of homes to worsen. As the prices go higher and the wages don’t cope up, people simply won’t be able to afford new homes. With this, economists expect the prices to halt in growth or even drop particularly in the coastal parts of the country which in turn, home sellers will put on hold their plans to enlist their homes in the market.
The Rise of iBuyers
Another trend that has risen in recent years is the one that technology has given birth to: iBuyers—companies like Mrs. Property Solutions offers help if you need to Sell home for cash Los Angeles. They use the internet as the platform which pretty much anyone can have access in the comfort of their homes, before they turn it up for a profit.
This appeals to a lot of home sellers because of its convenience and fast transactions. Also, with these companies—which are also dominating online presence—you do not have to worry about upgrading your house, cleaning it for potential home buyer viewings, or anything, you just give them your best schedule and you are good.
The iBuyer companies have actually contributed to a significant number of sales in the market.