Housing Market : Price Heating Up
(Fri, 18 July 2020) U.S. consumers expect home prices to remain hot, but some industry experts disagree. Will the 2020 housing market leave buyers with regrets? Gone are the days when millennials were crossing their fingers in the hopes that the economic downturn would crash the market and make homeownership more affordable.
U.S. consumers expect home prices will continue to rise throughout the next year. That forecast reflects conditions in the housing market today, but we asked two industry experts about where prices will go next. Will house-hunters be thankful they made a purchase now, or will they be left with buyer’s remorse? As the U.S. housing market springs from strength to strength, homebuyers are jockeying to secure their piece of the action before the entry fee rises.
Gone are the days when millennials were crossing their fingers in the hopes that the economic downturn would crash the market and make homeownership more affordable. Just a few short months later, they’re diving into bidding wars – and often paying far above asking price.
Americans Hike Home Price Forecasts As Housing Market Heats Up
U.S. homebuyers are finding that the “new normal” looks a lot like the old one, at least when it comes to pricing. And they’re adjusting their outlooks accordingly. The latest data from the Federal Reserve’s Survey of Consumer Expectations reveals that Americans believe home prices will rise a median of 2% over the next 12 months. Much like the overall housing market, consumer expectations for home prices are making a V-shaped recovery.
While that’s a moderate decrease from a year ago – when consumers expected prices to accelerate by 3% – it’s clear Americans can feel the heat radiating out of the housing market.
A Perfect Storm For Home Price Growth
It depends on who you ask, but industry experts agree that the housing market has plenty of demand. That means supply is going to dictate where prices go next. Tight inventories have been endemic to the housing market since the financial crisis brought a sudden end to a multi-decade homebuilding boom. The pandemic exacerbated these shortages. It’s like a game of musical chairs where only the best bidders get a seat. Both renters and move-up buyers who have held onto their jobs are vying for the small number of single-family homes on the market as they realize they need more space for their families.
Many would-be sellers are reluctant to make a major life change during this period of economic and social turmoil. Others are concerned about inviting strangers into their homes while the virus continues to spread. According to Redfin, 53.7% of all offers that involved the real estate company’s partner agents received at least one competing bid in June, up from 51.8% in May and 44.4% in April. Unsurprisingly, fewer sellers are cutting prices in this climate.
National Association of Realtors Chief Economist Lawrence Yun expects this supply-demand dynamic to keep prices elevated for the foreseeable future. Home prices are rising in most parts of the country and in most price segments because of the lack of supply. Record low mortgage rates are providing opportunity for buyers to lock-in low monthly mortgage payments for future years. The median home price for the country as a whole could easily rise by 10% cumulatively over the next two years.
Francesca Ortegren, a data scientist at Clever Real Estate, agrees that prices have the potential to remain elevated since the scales are so firmly tipped in sellers’ favor. As long as sellers are taking caution when it comes to putting their homes on the market, expect home prices will remain high as buyer demand doesn’t seem to have long-term impact from the lockdowns.
Perhaps counterintuitively, Ortegren told CCN.com that this dynamic could change once the pandemic is no longer a major threat to the United States. She says that as the health threat decreases, and social conditions stabilize, housing inventories could rebound enough to drive prices lower. Ortegren noted that 2020 homebuyers are already more likely to report feelings of stress and anxiety than people who purchased a house during the five years prior. That trend could accelerate if prices fall and new buyers find themselves underwater on their mortgages.
Where Does The U.S. Housing Market Go From Here?
Well, if Lawrence Yun’s correct, then the “typical” homebuyer doesn’t have much to worry about (although individual local housing markets will have substantial variations in price trends). Other industry experts are less sanguine. Zillow Research currently maintains a baseline forecast of a 1.8% decline in prices between April and October 2020. They predict this will be followed by a gradual recovery through 2021.
Economists at data analytics firm CoreLogic issued a much bleaker outlook in their most recent Home Price Index (HPI) report. They expect home prices to careen a full 6.6% lower over the next 12 months. With the median U.S. home currently valued at just under $250,000, that could wipe nearly $16,500 off the typical homeowner’s net worth – and leave new buyers wishing they’d stayed on the sidelines.
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