The new year and new decade will bring new trends to the real estate market and see a continuation of some trends that currently affect both real estate investors and homeowners around the country. Low mortgage rates, a changing rental landscape, low inventory and other factors will shape the market in 2020 and could influence the decision to buy or sell real estate this year.
Mortgage Rates Will Stay Low
As the Federal Reserve continues to strive for a slight increase in inflation, homebuyers can expect mortgage interest rates to remain low in 2020.The Fed hopes to boost economic activity with an annual target inflation rate of 2 percent, but it hasn’t been able to achieve that rate consistently for some time. As a result, it has announced that it plans to keep short-term rates low for the time being.
This is good news for homebuyers who plan to finance, especially as a strong economy continues to encourage homeownership in many areas. However, if a homeowner is selling a home in 2020, they can expect buyers to ask the seller to contribute towards closing costs. Average closing costs will remain at about 2 percent to 5 percent of the price of a home, with buyers searching for ways to mitigate them.
Landlords Will Face New Challenges
Residential landlords in many areas may need to tighten their belts as rent-control ordinances come into effect. Average investment in multifamily properties has already dipped in New York and California, where rent control laws were passed last year. Aspiring landlords may find it more difficult to break into the retail investment market, as home prices continue to climb in cities like Los Angeles, New York and San Francisco, not to mention relative newcomers to the high-rent scene, like Seattle, Portland and Nashville. Rent prices will continue to go up, however, and many younger homebuyers will look to purchase in the suburbs or to relocate altogether to more affordable parts of the country.
Inventory Will Remain Low
As the largest group of millennials turns 30 this year, more and more young people will start looking to buy their first homes, so the number of homes on the market, especially in desirable areas, will remain low, and bidding wars will continue. Many baby boomers are either remaining in their own homes longer or are looking to downsize into condos, townhomes or starter-size homes, which will exacerbate the shortage of properties available on the market.
Starter Homes Will Grow in Popularity
In the wake of the Great Recession, home builders largely focused on catering to the high-end market, but now that the economy has mostly recovered, starter home construction is being ratcheted up to meet the demands of younger homebuyers who want to buy their first homes, and older home buyers who want to downsize. With unemployment and interest rates at record lows, and many millennials getting married and starting families, it’ll be no surprise to see new-build starter homes appearing on the market.
Home Prices Will Slow, but Demand Concentration Will Increase
In 2020, new jobs will become increasingly concentrated around major city centers, with a growing portion of workers in the service industry relocating to those areas to seek employment. That means that home prices in those areas will continue to grow, but they can’t grow forever. Real estate prices will actually grow at a slower rate in 2020 than they have in the past. Demand for housing in big markets will stay strong, but if you’re thinking of selling in an area with a high cost of real estate, now is the time to do it, as home prices must slow to wait for wages in these areas to catch up.
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