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2020 Economic & Housing Market Forecast by Matthew Gardner, Chief Economist for Windermere Real Estate
In general, the economy performed pretty much as I expected in 2019: job growth slowed but the unemployment rate hovered around levels not seen since the late 1960s.
Following the significant drop in corporate tax rates in January 2018, economic growth experienced a big jump. However, we haven’t been able to continue those gains and I doubt we’ll return to a growth rate of above 2% in 2020. Non-residential fixed investment has started to wane as companies try to anticipate where economic policy will move in the coming year. Furthermore, many businesses remain concerned over ongoing trade issues with China.
In 2020, I expect payrolls to continue growing, but the rate of growth will slow as the country adds fewer than 1.8 million new jobs. Due to this hiring slow down, the unemployment rate will start to rise, but still end the year at a very respectable 4%.
Many economists, including me, spent much of 2019 worried about the specter of a looming recession in 2020. Thankfully, such fears have waned (at least for now).
Despite some concerning signs, the likelihood that we will enter a recession in 2020 has dropped to about 24%. If we manage to stave off a recession in 2020, the possibility of a slowdown in 2021 is around 76%. That said, I fully expect that any drop in growth will be mild and will not negatively affect the U.S. housing market.
My current forecast is for the U.S. economy to expand by 1.9% in 2020.
There were 5.34 million home sales in 2019 — exactly matching the number of homes sold in 2018. For 2020, I expect home sales to rise around 3% to just under 5.5 million units.
Home prices in 2020 will continue to rise as mortgage rates remain very competitive. Look for prices to increase 4% this year as demand continues to exceed supply and more first-time buyers enter the market.
In the year ahead, I expect the share of first-time buyers to grow, making them a very significant component of the housing market.
The new-home market was pretty disappointing in 2019 due to significant obstacles preventing builders from building. Land prices, labor and material costs, and regulatory fees make it very hard for builders to produce affordable housing. As a result, many are still focused on the luxury market where there are profits to be made, despite high demand from entry-level buyers.
Builders are aware of this and are doing their best to deliver more affordable product. As such, I believe single-family housing starts will rise in 2020 to 956,000 units — an increase of 7.7% over 2019 and the highest number since 2007.
As the market starts to deliver more units, sales will rise just over 8%, but the increase in sales will be due to lower priced housing. Accordingly, new home prices are set to rise just 2.1% next year.
2020 will still be very positive from a home-financing perspective, with the rate for a 30-year conventional, fixed-rate mortgage averaging under 4%. That said, if there are major improvements in trade issues
with China, this forecast may change, but not significantly.
In the coming year, affordability issues will persist in many markets around the country, such as San Francisco, CA; Los Angeles, CA;
San Jose, CA; Seattle, WA; and Bend, OR. The market will also continue to favor home sellers, but we will start to move more toward balance, resulting in another positive year overall for U.S. housing.
ABOUT MATTHEW GARDNER
As Chief Economist for Windermere Real Estate, Matthew Gardner is responsible for analyzing and interpreting economic data and its impact on the real estate market on both a local and national level. Matthew has over 30 years of professional experience both in the U.S. and U.K. In addition to his day-to-day responsibilities, Matthew sits on the Washington State Governor’s Council of Economic Advisors; chairs the Board of Trustees at the Washington Center for Real Estate Research at the University of Washington; and is an Advisory Board Member at the Runstad Center for Real Estate Studies at the University of Washington where he also lectures in real estate economics.