By: Kevin Graham (via QuickenLoans)
As the decade closes, we thought we’d take a look at what most experts agree you’ll see in 2020. We’ve polished up our crystal ball, so feel free to gaze inside with us.
Mortgage Rates Should Remain Low
Mortgage rates are expected to remain low for a couple of reasons. One has to do with inflation rates, and one has to do with global economics.
One of the holiday wishes of the Fed would probably be that inflation were a little higher. The Federal Reserve’s target for inflation has been 2% annually for a while now. The idea is that slightly higher inflation will make people want to buy now rather than waiting for the future because they’ll buy before prices go up, which acts to stimulate the economy. This is a level that hasn’t been consistently achieved.
In order to prompt a little bit of inflation, it helps to keep the federal funds rate low. If you do this, it keeps flowing rates for all sorts of loans (including longer-term mortgages) lower, because when it’s cheap for banks to borrow money, that savings is passed on to consumers. More money flowing through the economy will eventually give inflation a boost. But this hasn’t happened yet, and the Federal Reserve has indicated that they would like to keep short-term rates right where they are through 2020 in the absence of any changes in inflation.
The other reason mortgage rates could end up lower than they otherwise would is that there’s a lot of market uncertainty out there right now. When traders aren’t sure what to do, they put their money in bonds because they provide a guaranteed return.
There are multiple reasons for this mood in the market. To begin with, some of what’s driven worry in 2019 will carry into 2020. Among the issues people will be looking for clarity on are a couple of trade situations. Beginning with the U.S. and China, even though a deal has been struck, it’s a little light on implementation details at this point. Additionally, Brexit poses its own issues as the British government works toward negotiating deals with the countries in the European Union for trade as well as passage between the member states.
All of this global economic tension causes uncertainty in the financial markets and when things feel a bit iffy, traders pour more money into bonds, which provide a guaranteed return. Mortgage-backed securities are a popular bond, and this helps keep rates low.
Price Rises Will Continue, But Slowly
In 2020, industry analyst CoreLogic says that home prices will grow at a rate of 5.4% between October 2019 and October 2020. The survey operates on a 2-month lag so that was the latest month for which data was available. What’s important here is that there are signs of a slowdown. In 38 states, the pace in price appreciation is down compared to October 2019.
This does make some sense because in recent years, the pace of growth and home values has been faster than increases in wages. This hurts affordability, even if there are low mortgage rates available. At some point, the pace had to slow down to more normal levels.
Of course, as a real estate agent, you know that location is everything. So certain markets and even neighborhoods are going to have different conditions. Depending on where you’re at, prices could rise faster or even fall.
Inventory Will Remain Tight
There just won’t be enough homes available to keep up with demand in many areas of the country. Baby boomers are increasingly choosing to remain in their homes longer, which is driving down inventory of existing homes. Although housing starts have been going up, bidding wars for homes won’t be uncommon.
Builders are just now beginning to put the majority of their focus on starter homes because that’s where the need is. The problem is that it takes a long time to build a home, so it’ll be a while before there are enough of these on the market to make a real dent in the pent-up demand.
Depending on the market, your clients should expect to visit several homes before finding the one they want. In 2019, the average buyer searched for 10 weeks while touring a median of nine homes, according to the National Association of REALTORS®. There’s no reason to think that trend won’t continue in 2020.
Your clients can help themselves by talking to a mortgage lender and getting approved in advance so they know what they can spend. Quicken Loans® offers a Verified ApprovalSM so that your clients can be absolutely sure of what they’re getting.
Millennial Invasion Of The Housing Market Continues
The definition of millennial seems to depend on where you’re reading, but according to Realtor.com, the largest percentage of millennials will turn 30 this year. That’s when people typically start working for their first house. In fact, according to one estimate, millennials will have more than 50% share of the mortgage market by the middle of 2020.
If millennials make up an increasing share of home buyers, it can be useful to understand their preferences. For this, it’s useful to look at an analysis posted recently by the National Association of Home Builders.
Millennials don’t seem to have an overwhelming preference for a specific home location in relation to a metropolitan area, and are equally at home in rural and suburban regions as they are in the cities. Topping the list of desired amenities among millennials was a laundry room, hardwood floors and a patio or other exterior seating space. They also want homes to be move-in ready.
What’s going to be tough, particularly for millennials, is that there are a ton of buyers in their situation, so competition for starter homes will be particularly stiff. This makes the approval that much more important.
Going Online, But With A Personal Touch
According to the National Association of REALTORS®, 44% of people start their home search online, so it’s extremely important to have really good photos. However, even if it’s the i-Age, most people don’t buy a home more than once every 10 – 15 years, so having the personal attention of a professional is really important. How much so?
According to the data, 89% of people end up working with a real estate agent or broker. Meanwhile, 87% of people found their real estate agent to be a very useful source of information in their home search process. And 52% of people said it was most important that the agent help them find the right home.
In addition to pictures, you want to be listed on as many sites and in as many places as possible. In 85% of cases, buyers were able to find detailed information about the properties they bought very useful in their online search.
Now that you’ve been armed with this peek into the future, keep these things in mind as you hit the pavement running in the new year!