How Will the Housing Market Evolve in 2020?

Whether you’re a real estate investor, someone hoping to move in the next few years, or just a consumer who understands the important role that the housing market plays in the economy, you’re likely interested in learning how the housing market will change in the next year.

Ever since the financial crisis of 2008, home prices have creeped steadily higher, returning to pre-recession highs and exceeding them in most areas. This has been good for sellers, since they can capitalize on higher prices, and buyers are enjoying the benefits of economic optimism and widespread growth—so they certainly don’t mind the higher prices.

But if you’re buying a house in the next year, these recent-past figures won’t help you that much; if you buy a house that continues to rise in price for another decade, that’s great, but what if prices start to plummet the day after you sign the deal?

The real estate market isn’t especially predictable, but there are some trends and metrics we can use to guess how the housing market might evolve in 2020.

Fears of a Recession

Some people are afraid of a price correction, or a crash, in the housing market. According to one survey, 83 percent of Americans believe that now is a good time to sell, with 57 percent agreeing that there would be a housing bubble and/or a price correction by 2020.

And to be fair, there are some early warning signs that a housing market recession may be on the horizon. Home prices have been rising almost continuously for a decade, without anything so much as a price correction to keep them in check. In many areas, especially “hot” urban areas, there are fewer available homes and fewer affordable homes.

On top of that, there are some warning signs that we could be in the midst of a subprime mortgage crisis, or something like it. William Poole, former president of the Federal Reserve Bank in St. Louis, back in 2017, issued a warning that 35 percent of Fannie Mae’s loans required mortgage insurance—in other words, more than a third of issued loans were for an amount considered high enough to be risky, when considering the borrower’s credit history. For reference, that’s about the level it was back in 2006.

Unregulated mortgage brokers are also on the rise, providing home loans to people with fewer restrictions and less oversight. If the housing market begins to show signs of decline or weakness, it could cause a ripple effect; borrowers would default on their homes, prices would plummet, and every homeowner in the United States would suffer the consequences.

The Promise of Further Growth

There are some signs that the housing market will continue to grow, however. Despite some signs of slowing home sales, the number of home permits requested by homebuilders continues to rise—with more than 1.3 million permits granted in 2017. People are enthusiastic about buying and building new homes, and prices haven’t increased such that every area is becoming unaffordable—just the hottest markets in the country.

Also, home lending standards have increased in the wake of the 2008 financial crisis. Loans originated in the past few years have generally been considered high quality, with higher credit score requirements and stricter oversights—specifically to ward off the possibility of another subprime mortgage crisis. Banks are also lending less to home flippers, providing them with only 55 percent of the home’s value, compared to up to 80 percent in the years leading up to the housing collapse.

We also have to consider the broader state of the economy. Economic indicators are generally positive; interest rates are low, unemployment is near record lows, inflation is negligible, and consumers are brimming with confidence. There aren’t many unsettling factors leading people to worry about the future of the economy.

Local Considerations

Of course, we also need to keep in mind that broad-strokes national predictions aren’t going to have much of a bearing on local markets. Even if prices across the country sink slightly, there will be neighborhoods that take a massive hit and neighborhoods where prices increase in spite of this national trend.

Accordingly, if you’re thinking of buying or selling a house in the near future, you’ll need to spend some time digging into statistics and trends in your target neighborhoods. It’s simply not enough to make a big-picture guess at what’s happening across the country.

It’s hard to say what’s in store for 2020 at the national level. There are some strong signs that the economy is stable, and that housing prices will continue to rise, but there are also some warning signs of an impending recession. Do your research, look at your local neighborhoods, and watch for further signals of what’s to come.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes.