Gillham Team Real Estate

The 2020 Real Estate Projections That May Surprise You

This will be an interesting year for residential real estate. With a presidential election taking place this fall and talk of a possible recession occurring before the end of the year, predicting what will happen in the 2020 U.S. housing market can be challenging. As a result, taking a look at the combined projections from the most trusted entities in the industry when it comes to mortgage rates, home sales, and home prices is incredibly valuable – and they may surprise you.

Mortgage Rates
Projections from the experts at the National Association of Realtors (NAR), the Mortgage Bankers Association (MBA), Fannie Mae, and Freddie Mac all forecast mortgage rates remaining stable throughout 2020:The 2020 Real Estate Projections That May Surprise You | Keeping Current MattersSince rates have remained under 5% for the last decade, we may not fully realize the opportunity we have right now.

Here are the average mortgage interest rates over the last several decades:

1970s: 8.86%
1980s: 12.70%
1990s: 8.12%
2000s: 6.29%
Home Sales
Three of the four expert groups noted above also predict an increase in home sales in 2020, and the fourth sees the transaction number remaining stable:The 2020 Real Estate Projections That May Surprise You | Keeping Current MattersWith mortgage rates remaining near all-time lows, demand should not be a challenge. The lack of available inventory, however, may moderate the increase in sales.

Home Prices
Below are the projections from six different expert entities that look closely at home values: CoreLogic, Fannie Mae, Ivy Zelman’s “Z Report”, the National Association of Realtors (NAR), Freddie Mac, and the Mortgage Bankers Association (MBA).The 2020 Real Estate Projections That May Surprise You | Keeping Current MattersEach group has home values continuing to improve through 2020, with four of them seeing price appreciation increasing at a greater pace than it did in 2019.

Is a Recession Possible?
In early 2019, a large percentage of economists began predicting a recession may occur in 2020. In addition, a recent survey of potential home purchasers showed that over 50% agreed it would occur this year. The economy, however, remained strong in the fourth quarter, and that has caused many to rethink the possibility.

For example, Goldman Sachs, in their 2020 U.S. Outlook, explained:

“Markets sounded the recession alarm this year, and the average forecaster now sees a 33% chance of recession over the next year. In contrast, our new recession model suggests just a 20% probability. Despite the record age of the expansion, the usual late-cycle problems—inflationary overheating and financial imbalances—do not look threatening.”

Bottom Line
Mortgage rates are projected to remain under 4%, causing sales to increase in 2020. With growing demand and a limited supply of inventory, prices will continue to appreciate, while the threat of an impending recession seems to be softening. It looks like 2020 may be a solid year for the real estate market.

Buying a home in 2020 depends on your financial health habits

If home-buying is on your radar in 2020, it should be more than a passing thought. Unlike previous years when you may have made a snap decision to buy a car or take a trip, you should be preparing for it with nearly every financial decision you make.

ZillowPorchlight's Alexa Fiander suggests some New Year's resolutions to keep your financial resume in great shape:

"Employment history and income are two of the biggest factors lenders look at when evaluating a mortgage application," says Fiander. "A new job may be a good career move, but if you plan to buy a home in the new year, know that job-hopping can be a red flag to some underwriters — especially if you're moving to a different industry." If you're looking around for something new, keep those plans for after you close escrow on a home. Job stability is king with lenders, who will also scrutinize any gaps in employment over the past two years. They must feel you are an excellent risk before approving your loan.

If, however, you make an employment change after applying for a loan, let your lender know ASAP, as they will need extra documentation. Verifications for reserve funds, employment status, and a credit check are usually done at the beginning of the loan application process as well as at the end, so it's best to freeze everything in time if possible. Lenders like steady, predictable paychecks.

While a good credit score is vital, credit utilization reveals a lot about your spending habits. Even if you pay off your credit card every month, you could be dinged for high credit utilization if your credit report is pulled mid-cycle. That old adage your parents used to use — "credit cards are for emergencies" might apply now. "Lenders prefer borrowers who have a history of paying off credits cards and other debts on time — because it signals that you're a responsible borrower and less of a risk," says Fiander.

What? No credit at all? You'd think lenders would be okay with that, since there is no history of financial mistakes, late fees, etc. but you'd be wrong. "If you don't have credit, securing a home loan may be significantly more challenging and time-consuming, but not impossible," says Fiander. "Records of paying rent and utilities on time, as well as student loan debt or cell phone bills, can help show a potential lender that you have a history of managing monthly payments."

As you prepare for a home purchase, consider checking your credit score as if you're checking the scale while on a diet, since your credit score can have a significant impact on your ability to buy a home. The lower the score, the higher the interest rate that might be available to you. "Just a few percentage point differences in an interest rate can cost you thousands over the life of a loan. Monitor your credit closely, especially for fraudulent activity, to prevent any surprises that could delay the loan application process," says Fiander.

Just because you aren't a credit card ju**ie doesn't mean other financial decisions won't make an impact. The moment you submit your loan application, it's best to avoid taking on large amounts of debt, such as a car purchase or a family reunion in Tahiti. Your pre-approval may be affected by not waiting until escrow is closed.

Of course, if you have any questions about your situation, reach out. We're here to help.
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First Time Home Buyers, For Buyers
December 2019: The Buyer Stakes Are High Because Inventory Is Low

The reality of what we’re seeing this month is that homes are selling fast. In today’s strong seller’s market, bidding wars are common and expected with starter or entry-level homes.

In most areas of the country, first-time buyers have been met with fierce competition throughout their homebuying experience. Some have been out-bid multiple times before finally going into contract on a home to call their own.

Right now, inventory is the big challenge. Here’s what we know today:

According to the latest Existing Home Sales Report from the National Association of Realtors (NAR), there is currently a 3.9-month supply of homes for sale, which can drive this kind of hefty buyer competition. Remember, anything less than 6 months of inventory is a seller’s market.

Even though the month’s supply of inventory is not increasing, ironically, the number of homes for sale is. This means homes are coming up for sale, but they’re being sold quickly. The graph below shows the year-over-year change in inventory over the last 12 months.December 2019: The Buyer Stakes Are High Because Inventory Is Low | Keeping Current MattersAs depicted above, the percentage of available inventory has fallen for four consecutive months when compared to the previous year.

So, what does this mean? If you’re a buyer, be sure to get pre-approved for a mortgage and be ready to make a competitive offer, so you can move quickly. Chances are, homes high on your wish list are likely going to go fast.

Bottom Line
If you’re thinking of buying a home, make sure you’re taking the right steps at the beginning of the process, so you’re a top contender if you ultimately find yourself in a bidding war. Reach out to a local real estate professional to determine what you need to do to make your move toward homeownership.