Time flies when you are investing in real estate, right? So here we are just over a month away from 2020. Makes me wonder what next year will bring so I decided to dig into some forecasts collected by good ol’ Fannie Mae.
Themes of the 2020 Housing Forecast
1.) Rates Stay Low
Based on the Fannie Mae study, expectations are for 30-year mortgage rates to remain low and even push slightly lower with rates sitting around 3.5 to 3.6 percent for the year. If the prediction comes to fruition that will be a lower average than both 2018 and 2019.
2.) Housing Starts Slow Throughout the Year
Expectations are that housing starts will slow through the year, being strongest in Q1 and easing up each quarter with Q4 being forecast to have the slowest rate at 1.25 million starts on an annual basis.
Note to investors: the biggest decline is in construction of multifamily property (two units or more), with a 5.6 percent year over year decline to 364,000 being forecast for 2020.
3.) Existing Home Prices Start of Strong But Slide In Second Half of Year
Home prices are expected to rise from Q1 to Q2 next year, topping out with a median price of 291K. However, a price decline is forecast for Q3 and Q4 with the median price finishing the year at 279K.
Takeaways and Conclusions
Looking at this data, which you can find here, I see a couple possible things….
The slowdown in multifamily construction may lead to continued price pressure in that segment as more and more investors chase fewer properties, especially while interest rates are still low.
Home builders may be taking a wait a see approach for Q4. With expected builds falling in all categories for Q4 – I would guess builders are easing up a little as the political landscape is an unknown at this point.
In addition to that, rates being cut (during a time of economic expansion) have only juiced the market even more coming into next year’s elections.
The level of risk vs. reward doesn’t seem like a super positive proposition at the moment given we are roughly 9 years into an appreciating housing market.
This is yet another reason I love rental properties. Buy right and cash flow – less worries about what the market does.