Real Estate Investment Predictions for 2020

Real Estate Investment Predictions for 2020

The trends that are expected to emerge in 2020 are the result of the stage finally being set for the amount that millennials have in savings finally being enough to use as a down payment for a home. A large enough down payment will mean lower interest rates on those mortgages!

Meanwhile, the large margin between those who can and cannot afford homes will create opportunities for rental investments in non-traditional markets (since the metro areas we all know by names are getting far too pricey for all but the financially well endowed).

Rent control will spread more widely impacting investor interest

In 2019, rent control won big in Oregon, New York, and California. In NYC, 9.2% of multifamily investment fell while in LA that figure was 9.8%. Whether or not those figures are negligible or not is contingent upon whether or not one values the intentions of rent control laws. 2020 may see further states adopt such laws, and 2021 may see rent control become particularly visible as it is a part of many Democratic Presidential candidate platforms.

Mortgage rates will fall to record lows

There are several reasons that 2020 may see mortgage rates fall. While the US economy appears strong many of these measurements are superficial. If we expand our scope we’ll see that Trump’s trade war is taking much longer to wrap up than hoped for. Additionally, global economic growth is turning into a global economic slump as growth hits its lowest level since the great recession. And if a Democratic candidate wins the 2021 election, expect greater short-term uncertainty caused by the simple fact that power is switching ideological hands.

To encourage growth, it wouldn’t be surprising to see the Fed cut interest rates a couple of times in 2020. A lower economy may inspire consumer interest rates to drift lower as well, although that may be a positive if it’s the result of people having more money to spend on down payments that are a significant enough percentage of the cost basis (the property’s value) that the lender offers a low-interest rate.

The gap between owners and renters will grow

Rising home prices have made single-family homes simply unattainable for many aspiring homeowners, particularly in big markets. Now Austin, Boston, Charlotte, Columbus, Denver, Miami, Nashville, Portland, and Seattle are rising to the ranks of NYC and San Fran as far as high rents are concerned.

This is good news for people who already own rental properties; not so much for people who want to get into rental property investment. That’s because the properties themselves have gotten pricier. A more accessible route to renting may be splitting single-family homes into several rental units, despite the additional resources this would require. Of course, a property manager will make this more feasible, at a cost of roughly 6% to 12% of the rent. Apartments, as always, are a good idea. There are always tenants who can dependably meet the demand for a lower rent.

Homebuilders will keep focusing on starter homes

In the wake of the Great Recession, it made sense not to build starter homes. Young people weren’t buying and the well-to-do crowd was far more interested in custom abodes. These days, young people are expressing the desire to be homeowners. The demand is high enough that it’s being felt in the stock market, where homebuilders who focus on entry-level properties are experiencing a boom. Think LGI Homes (NASDAQ: LGIH) and Meritage Homes (NYSE: MTH). So long as the economy continues to do reasonably well, then expect more Millenials to follow through on their family and white picket fence dreams, which will lead them to starter homes.

New real estate models will be funded by venture capital in 2020

2020 will continue to see venture capitalists invest in companies that promise big data-fueled AI to automate and improve elements of the real estate experience. This will range from AI leasing assistants to mobile buying platforms that use big data to more effectively pair you with your next abode. Virtual and self-guided tours of properties will continue to grow in popularity.

Markets where sales are expected to decline in 2020

Overall, 2020 is going to be a year of declining sales when it comes to existing homes–1.8% over the year. But some places will be hit far worse than others.

Market 2020 Sales Volume Change
DES MOINES, IOWA -10.5%
PALM BAY-MELBOURNE-TITUSVILLE, FL -9.8%
LAS VEGAS-HENDERSON-PARADISE, NV -9.5%
RICHMOND, VA -7.7%
RIVERSIDE-SAN BERNARDINO-ONTARIO, CA -7.6%

 

 

 

 

 

 

 

Data source: Realtor.com

2020 is going to be a hard year for markets that have been sitting pretty for a couple of years. The markets in the above tables didn’t fall into the sitting pretty category, so their fall will feel different from the decline experienced by places like Las Vegas, South Florida, and Riverside. Supply problems will be particularly exasperated in New York City and San Francisco.

Millennials Will Get Aggressive About Buying Homes

Realtor.com is predicting that Millenials are going to come out in droves to take more mortgages than both baby boomers and gen-X’ers. There’s a good chance that down payments from millennials will be greater as well, which will mean lower interest rates on their loans. Realtor.com predicts millennials — particularly those between 30 and 40, although far closer to 30– will collectively claim 50% of all home mortgages! Why? Because they’d rather have a 1,800 square-foot home in the suburbs than live in more urban environments. Feeling doubtful? Just spend five minutes talking to a New Yorker about how they just want to get away from the city.

The Housing Market Will Be “More Competitive.”

Experts predict that the cool-down that began the second half of 2018 will come to an end in 2020. Lower mortgage rates started to make themselves felt at the end of the 2019 summer, but the true effect won’t be known until well into 2020. By 2020, there will be fewer homes on the market relative to the previous five years. Bidding wars making a comeback may be good news for sellers who wanted a more competitive marketplace. Faster price growth will motivate homeowners and builders to list more homes (since they want more money), which should add balance to the supply and demand relationship.

Home Prices Will “Flatten.”

In more than 25% of the nation’s 100 largest cities, prices are expected to decline by more than 25%. Home prices overall are only expected to increase .8%.

If a Recession Occurs, Housing Won’t Be Overly Affected

People are spending money and new job opportunities keep popping up. This is reason enough for many people to say that the real estate market is not going to crash. Of course, many of these new jobs are either in the gig economy of finding workers squeezed, meaning that they are expected to perform the work of multiple employees. Rather, a better reason to not fear a real estate market crash is that real estate has a low correlation with other commodities. Instead, signs of a real estate market crash to come would look more like previous real estate market crashes. So, if you see non-AAA loans being marketed as AAA loans while those responsible for oversight look elsewhere, then you should fear a real estate market crash.

Overall, U.S. Home Values to Rise in 2020

Real estate is going to continue to rise but at a rate far less than what’s been seen in recent years. .8% is an estimate accepted by many. Of course, estimates are often wrong! And since they are generalizations there will certainly be exceptions to the rule. Columbia, South Carolina is expected to grow by 5.5% and Boise, Idaho (home of the largest Basque population outside of Basque country in Spain), is expected to go up 8%!

Bottom Line

The stage is set for an interesting 2020. Many Millennial with aspirations to home ownership will finally be able to take out loans for starter homes. Meanwhile, rising income inequality will force many to rent outside of traditional metropolitan markets, creating investment opportunities for those savvy enough to identify flushing markets before they flourish!

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