A Forbes article featured interviews with five real estate experts discussing their predictions for the housing market for the remainder of 2020. Each of the interviewees works as an economist and/or data professional at a top real estate company in the U.S. Here is a summation of their opinions on the U.S. real estate housing market’s five core points for the remainder of 2020 and moving into 2021.
Housing Market Recovery Path and Buyer Demand
As of August 2020, the housing market has followed a distinct V shape. However, it’s expected to look more like a W as time goes on.
This expectation comes from the fact that most of the demand resulting in the market recovery is likely carried over from buyers looking to make a purchase earlier in the year. Buyers had to delay their plans to buy, grinding the market to almost a complete halt at the beginning of the normal buying season around March and April.
Those buyers waited until June and July to enter the market again at a time when other buyers entered the market as well. Therefore, the buying demand reflected in the mid- to late-summer months was strong.
Once the carried-over demand dies down, the market itself will likely cool off. As the economy at large recovers, the housing market will also climb upwards again. Signs point to a slow and steady economic recovery starting late 2020 and into early 2021. However, this is subject to developments related to COVID-19.
Housing Market Indicators
Many of the developments in the U.S. housing market can be represented with numerical indicators. Here are the indicators the five interviewed experts expect to increase and decrease over the remainder of the year.
Indicators Likely to Increase
- Home Prices
- Foreclosures
- New Construction
Because of a reduction in inventory in the U.S. housing market, many homes are going up in price. The price increases have been consistent since the beginning of the year. Although some homes may not be sold as quickly, the prices are likely to remain on an upward trajectory because of continued restrictions in new homes coming onto the market.
New construction is expected to pick up again as restrictions put in place in response to the pandemic are lifted. Construction of new homes is likely to resume and accelerate as investors and others have the confidence to enter the market.
Foreclosures are also likely to increase in early 2021, depending on the U.S. government’s measures to alleviate the burden placed on borrowers. The Department of Housing and Urban Development (HUD) has extended the moratorium on foreclosures to go through the rest of 2020. However, when this moratorium expires, it’s unclear what will happen to borrowers. Some lenders may choose to attach missed payments to the end of existing mortgages, while others may require lump-sum payments.
Indicators Likely to Decrease
- Total Home Sales
- Rentals
- Refinance
Indicators likely to decrease over the remainder of 2020 include total home sales, because of the limited supply of homes on the market and decreased buyer demand. However, the housing market is not expected to perform poorly in 2021.
Rentals may also take a hit as people choose to buy a home, taking advantage of historically low mortgage interest rates. Others may remain in co-living accommodations inspired by COVID-19 hardships to save money. Furthermore, owners of rental property may sell their property to homebuyers due to decreased rental demand.
Lastly, refinancing of existing mortgages is likely to spike, then normalize.
Tightening Inventories and Hesitant Buyer-Sellers
Reduced inventory has been a trend in the housing market since before 2020, but it’s become more pronounced during the pandemic as would-be sellers hesitant.
A 2019 report from the National Association of Realtors found that 38% of buyers covered their down payment using proceeds from the sale of their primary residence. This indicates that more than one-third of all homebuyers in the U.S. were also sellers during the process.
Buyer-sellers are usually interested in upgrading to a home that better suits their needs. Because there are fewer homes on the market, they are less likely to find a home they feel is better than their existing home and may therefore not put their own home on the market, resulting in a tighter housing market.
Home Price and Mortgage Rate Trends
As mentioned above, home prices are expected to go up, in part because of lower inventory. This causes more competition for existing homes on the market, resulting in higher prices. However, the other major factor affecting the overall cost of buying a home is mortgage interest rates.
Lower interest rates result in higher home prices. As mortgage rates remain historically low, home prices are slowly rising. There is no indication that mortgage rates will increase again in 2020, meaning home prices are likely to remain constant and steadily increase.
Potential Housing Market Issues in Late 2020 and 2021
The Coronavirus pandemic still presents the most eminent problem for the remainder of 2020. Some sectors of the economy have been hit harder than others, resulting in higher unemployment rates and threats to many individuals and families’ income.
The housing market is going through turbulent times and is currently facing a high level of uncertainty. However, experts are indicating that there are no signs of a housing market crash on the horizon.
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