In 2019, median home prices reached a new record high of $316,000, and some people predict 2020 will be another record-breaking year for home prices. But the new decade is not exactly starting off without trouble. Even though unemployment rates are lower than they were 50 years ago and interest rates seem to be getting even smaller, meaning consumers have buying power, the industry seems to e dragged down by a few other factors.
Affordable houses are almost running out, and even though realtors are building more, they can’t exactly keep up with the demand. This creates a bottleneck effect, that keeps buyers from actually having where to put their money.
With this being said, what should buyers and sellers expect from the real estate industry in 2020?
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Home prices are rising at an even slower pace
Home prices are rising at an even slower paceCompared to 2018, when house prices grew by 5%, 2019 only brought a 3.3% increase in prices. In 2020, the trend seems to be quite similar, with experts predicting that prices will only increase by 2.8%. This means that, even though sellers may make more profit, buyers won’t exactly have to burn a bigger hole in their pockets.
For those looking to sell their house this year, experts advise to keep an eye open for the competition and to make efforts to improve home value, as many buyers will try to score a low price. Working with a real estate agent may help ensure sellers will get a fair price on their house, in accordance with the market.
Buyers, on the other hand, should not rush into purchasing a home only because they fear prices might go higher than their budget allows. When it comes to buying a house, you need to know when to compromise and when to stay put. A piece of advice would be to try and score a smaller, less expensive house in a good neighborhood, rather than a bigger one in a less-desired area.
Mortgage interest rates are still going down
Last year, interest rates for common types of loans dropped below 4%, and predictions show the same trend for 2020. For a 30-year mortgage, interest rates should stay at a low 3.7%, while for 15-year mortgages, you should expect to be paying a 3.2% interest rate.
While, for house prices, predictions tend to be more accurate, things can get a bit trickier when it comes to interest rates, because there are many variables to keep in mind. Things such as tariffs and trade wars have the potential to shift the economy, meaning interest rates may have to go up a bit, to keep things balanced. However, such changes will only be registered later this year.
If interest rates continue to drop or stay the same as in 2019, sellers should have no problem in getting a good price for their house. However, if interest rates will show a tendency to increase, they can expect their houses to be on the market for a bit longer than predicted, as Walton Robinson estate agents advise.
The buyer persona is changing
The economy is not the only factor that influences how the real estate market changes over time. Knowing who the buyers of 2020 are, will help sellers to market their house right, and from how things are looking out, millennials seem to represent the majority of home buyers.
Millennials are people born between 1980 and 1998, and in 2019, they represented 37% of the total number of homebuyers in 2019. This means the younger generation finally affords to make the commitment to buying their first home. But they do seem to have quite specific desires in mind, including a laundry room, patios, and garage storage, so sellers may need to make some improvements.
Baby boomers are also expecting to change houses in the years to come, as they reach retirement and are looking to downsize or move to some other areas.
More homes are being built
Homebuilders are busier than ever before, trying to keep up with demands. In fact, 2019 was the year builder confidence reached the highest level in the past 20 years, and the reason seems to be low mortgage rates. Homebuilders are also aware of who the buyers of the next decade are, and are focusing towards building more affordable, entry-level houses, less luxurious, but with open spaces, to satisfy the needs of millennials.
But even though home builders are working round the clock to meet market demands, inventory shortage is still a problem. To keep up with demands, it is estimated builders should raise around 1 million new homes, which won’t exactly be possible in 2020. This happens because people tend to move less, shortening inventory and increasing the need for new buildings.
Should you buy a house in 2020?
Even though predictions for 2020 look good for buyers, people still ask themselves the same question: is it better to buy or rent a home in 2020? The answer depends highly on individual circumstances, such as the desire to start a family, securing a steady job, or achieving financial independence.
What those considering to buy a new home in 2020 should keep an eye on, is the price-to-rent ratio, which helps them figure out if buying or renting makes more sense. Typically, a 1 to 15 ratio means you may be better off buying a house, while ratios above 21 suggest you should stick to renting. s
Should you sell your house in 2020?
For sellers, things seem to be much more in the clear. The market is looking good, so the only things you need to worry about are if there is a buying demand in your area and if your house is what buyers are typically looking for. This means you may need to make a few adjustments to make your house more appealing to new buyers, especially millennials.
Whether there will be a demand for your house or not, depends on many aspects, such as neighborhood, property type and upgrades, meaning you may need to find ways to compensate. The winners, however, seem to be entry-level home sellers, who will encounter less picky buyers and can keep prices firm.
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