Where will housing be in 2020? According to the latest Metrostudy predictions, if all continues on its current track, construction costs could continue to increase, and mortgage rates could reel in.
While rates have increased in the last six months, impacting affordability, the rise is not significant according to historical trends, says Mark Bound, chief economist and senior vice president at Metrostudy, a provider of primary and secondary market information to the housing and residential construction industries. In the long term, Boud predicts mortgage interest rates will top out at 5.8 percent in 2020 and 2021, eventually being pulled down by slower economic growth—and because of tighter lending practices, the market environment will not become as dire as the last housing bubble.
As I write this update as of today the 10 year note is up slightly to a yield of 2.9% with the corresponding typical 30 year conventional mortgage rate averaging 4.625%. Mortgage Rates are Higher than last year at this time where 30 year conventional mortgage rates were around 3.875% but certainly significantly lower than the historical average. See chart below:
Finally, I have done a 5 year search of active single family listings in the counties of Chesterfield, Goochland, Hanover, Henrico and Powhatan and the city of Richmond.
As one might expect, based on weather and the holidays, you can plainly see that yearly active listings seem to peak somewhere around July and fall to their lows around January. What is fascinating to me in looking at this 5 year chart is that since 2014 the number of active listings in the Richmond Metropolitan Area has declined in each successive July and January. In other words, the active listings high for each year and the low for each year has been successively lower each year since 2014.
The low levels of inventory is the primary reason that housing prices have risen at a much higher rate than the average income. With less homes on the market competition works in favor of sellers in pushing up prices. It has been the low mortgage rates that have kept buyers in the market for buying homes. It looks like this coming January 2019 will continue the trend of low inventory.
I do not see slightly rising interest rates effecting the willingness of buyers to buy homes for the next year or so. The overall macroeconomic outlook is good for 2019 and going into 2020.
At some point though, housing prices will become just too high for the average purchaser and home sales will slow down. The slowing down of housing prices or even a flattening or slight decrease in housing prices will give pause for year or two to allow incomes to rise in proportion to housing prices. In essence bringing income levels back into equilibrium with housing prices.
I see 2019 and 2020 as good years for housing prices for sellers of homes in good showing condition in good locations and very competitive years for buyers looking for those types of home. Buyers need to pre-qualified and ready to jump to purchase a home when they find a good one. And be prepared to lose a few homes due to multiple offers in the peak spring and summer purchasing months.