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2020 Housing Inventory Projections: How Will They Affect Pricing?

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The housing cycle is recurrent, but the problem is that no one really knows when the tide will begin to shift to the next phase of the cycle. At one point, there’s plenty of housing available at affordable prices, and then things begin to tighten. If experts are correct about housing inventory levels in 2020, it appears we’re entering the latter stages of that cycle.

2020 Housing Inventory Projections

There’s a good chance that the U.S. housing market will continue to slow in 2020. According to realtor.com’s latest housing market forecast, inventory levels are approaching historic lows as first-time homebuyers face issues relative to affordability.

In 2019, new home construction was largely isolated to more expensive homes that don’t appeal to first-time homebuyers. But it’s not just new homes that are creating a strain on inventory. There are fewer existing affordable homes on the market as well.

Increasingly, Baby Boomers are choosing to age in place, which is increasing the average homeownership tenure. Nationwide, the average is 13 years, but it goes up to 23 years in some markets.

When it comes to single-family housing starts, realtor.com predicts a 6 percent increase in 2020 but says that the market is still years away from having a sufficient supply of homes to meet the current demand from buyers. Even though there is still a demand for homes at certain levels, 2020 will likely prove to be challenging due to an increasing lack of supply.

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Implications for Pricing and Lending

There are multiple predictions for flattening price growth in the U.S. real estate market in 2020. Entry-level demand will remain strong, and prices could inch up as much as 0.8 percent nationwide in the coming year.

But those figures will vary depending on the market. For example, prices are expected to jump 3.4 percent in Metro Phoenix as sales drop 0.4 percent. On the other hand, experts expect prices to drop 4 percent in Kansas City as sales jump 3.4 percent.

On the mortgage side, the report expects rates to remain reasonable at an average of about 3.85 percent throughout 2020. While this scenario won’t fill the coffers of lenders like it would in a hot market, low mortgage rates will continue to attract buyers in a less than certain market.

According to the latest forecast from Freddie Mac, the housing market is expected to remain strong in 2020, with sales of 6.2 million homes in the new year and mortgage originations of $2 trillion. The agency expects refinancing originations to slow over the next several years, however.

Even though the economy continues to soften, buyers will keep looking for the right markets with low barriers to entry. Some of the markets that will remain truly competitive include Florida, Georgia, and the Carolinas. Millennials are likely to seek out up and coming cities with growing amenities such as Cleveland and Kansas City.

The good news is that price increases have slowed, and mortgages remain affordable, but buyers that want to purchase a home in 2020 will have to find one, and that might be easier said than done.