Millennials are anticipated to drive the U.S. housing market forward in 2020 more than ever, with large cohorts expected to either purchase their first home or decamp from city to suburb and trade up, according to an economic forecast published by realtor.com on Wednesday.
The group of individuals born between 1981 and 1997 “are reaching key life milestones” in 2020—4.8 million of them are turning 30, a time when many people purchase their first homes—and are expected to take on more than half of all mortgages next year, outnumbering Generation X and Baby Boomers combined, according to the report. The eldest of the millennial generation, meanwhile, will turn 39 next year—often a point when people look to move from the city to the suburbs for family-friendly amenities.
The takeaway is that millennials of all ages will help keep overall buyer demand robust in 2020, especially for entry-level homes, according to the report. This year saw the potential buyer pool grow nationwide due to the aging millennial population as well as low interest rates and rising rents. In 2020, buyers may benefit from flat home price growth, which is forecast to increase just 0.8% nationwide. Prices will decline in a quarter of the 100 largest cities, including Chicago, Dallas, Las Vegas, Miami and San Francisco, the report predicted. In addition, mortgage rates are likely to average 3.85% throughout the year, bumping up to 3.88% at the highest point.
But while it may be easier to qualify for a home next year, it could be more difficult to actually find one, the report says, because the continued low supply of inventory will constrain buyers, especially at the entry level. Part of the reason: New construction in 2019 was largely isolated to upper-tier housing, according to the report. (Realtor.com defines “upper-tier housing” as properties roughly $500,000 and up, but the exact figures vary from market to market.)
Sellers, meanwhile, will need to adjust their expectations and perhaps their asking prices as the market balances out, tipping favor toward buyers. Those who do accommodate local market conditions can expect to be rewarded by steady demand, the report predicts. Existing home sales are expected to tick down 1.8%, to 5.23 million next year.
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In the luxury segment, defined as the top 5% of the price range in a given market, both sales volume and prices have softened throughout the U.S. in 2019. That’s expected to continue into 2020, realtor.com’s senior economist, George Ratiu, said in an interview Wednesday.
“This year marked a turning point for the luxury market, where we saw softening in large part because the supply of new homes in that market has been ramped up,” he said.
At the same time, eager would-be sellers have been moving to list their properties in hopes of taking advantage of the price appreciation that’s built up over the last six years, he said.
Supply of luxury homes will continue to outweigh demand, listings will spend linger, and in some cases, sellers will make big price cuts to move the inventory, Mr. Ratiu said.
The slowdown can be partially attributed to the country’s demographic shift, as buyers under 40 flood the market, Mr. Ratiu noted.
“Many of them are saddled with student debt, and it’s a stretch to expect that they are going to pick up a lot of the slack at the upper end of the market,” he said. Anyone who has wanted to buy luxury property and could afford it has probably already bought one, he added.
Worries the country could be heading toward another recession have been floated this year, but that isn’t likely in 2020, the realtor.com report says. The economy will, however, show signs of softening, and the pullback in business spending is expected to lead to a slowdown in consumer spending, according to the report.
One big uncertainty in 2020 is how the U.S. presidential and congressional elections, will affect the housing market. Although there’s not a direct line between the election and the housing market, “business optimism and investments, along with consumer confidence and spending do influence economic output, and can also influence housing activity,” the report notes.
“Rising uncertainty about the economic outlook will dampen consumer enthusiasm about spending, leading to a decline in sales and an increase in homeowners’ tenure,” the report says.