Will 2020 Be a Good Year to Buy a Home in the U.S.?

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Highlights from this report:

  • In many U.S. cities, 2020 could be a good year to buy a home.
  • Nationwide, home prices are expected to continue climbing.
  • But prices in some housing markets could decline in 2020.
  • Mortgage rates are still very low, according to a recent survey.

Will 2020 Be a Good Year for Home Buyers?

Will 2020 be a good year to buy a home in the U.S.?

Three or four years ago, this was an easier question to answer. Back then, house prices were rising steadily in most cities across the country. Home buyers could purchase a property and watch it appreciate in value from day one.

smart phone showing 2020

Today, things are more complex. It’s more of a mixed bag.

In some cities across the country, home prices are either leveling off or dropping right now. (I’m looking at you, San Jose and Seattle.) But most of the country is still experiencing a rise in house values, as of late summer 2019. We expect these trends to continue through the end of this year and into 2020.

So, will next year be a good time to buy a home? That largely depends on where you plan to buy, and how long you plan to live there.

Home Price Trends in Late Summer 2019

Home prices in most U.S. cities are still rising, as of the third quarter of 2019. But the size of those gains varies greatly from one city to the next.

Consider the difference:

  • In Boise, Idaho, the median home value increased by around 12% over the past year or so. (Source: Zillow)
  • During that same period, the median price in Palo Alto, California dropped by around -13%. (Same source)

These two housing markets represent the far ends of the spectrum. They are the extremes. Most other cities across the U.S. fall somewhere in between. The point is, every local real estate market is different because supply and demand conditions vary greatly.

So the question we opened with — Will 2020 be a good year to buy a home? — isn’t a yes or no question after all. There are too many variables at play.

We hear a lot in the news about “the” housing market. In truth, we do not have a singular real estate market in this country that rises or falls uniformly. We have thousands of individual markets that follow different paths based on factors like migration, population growth, employment trends, etc.

That’s why it is so important for home buyers to research real estate conditions in their local areas.

A General Slowdown in Price Growth?

The one thing that most housing markets across the country have in common right now is a slowing of home-price appreciation.

Nationwide, the median home price rose by around 4% over the past year or so. That’s down a bit from the previous year’s gains, and down a lot from 2017. One forecast predicted that home prices nationwide would end up rising 3.4% during 2019 (by year’s end).

A few years ago, we were seeing much bigger gains for the nation as a whole, and within individual housing markets across the country. Double-digit annual price growth was occurring in many cities. Today, not so much.

From an economic standpoint, a slowdown in home-price growth would probably be a good thing at this stage. Since the housing market recovery began in 2012 / 2013, house values nationwide have risen at a rapid and unsustainable pace.

A January 2019 report from National Association of REALTORS® showed that home prices in the U.S. rose 47% over the past six years, while wages only rose by 16%. That’s quite a disparity, and it explains why so many housing markets across the country are now considered “unaffordable” to an average earner.

A slowdown in home-price growth might be just what we need at this point — especially in those markets where prices have skyrocketed over the past six or seven years (Seattle, Denver, Boise, etc.).

And that’s precisely what we are seeing right now, in many local real estate markets across the U.S. Prices are gradually slowing to a more normal and sustainable pace. This trend could make 2020 a good time to buy a home. It could also help prevent another housing crash down the road. A real estate “bubble” can’t burst if it doesn’t form in the first place.

Low Mortgage Rates Make It a Good Time to Buy

If you’re planning to use a mortgage loan to purchase a home, you have even more incentive to act sooner rather than later. Mortgage rates are hovering at historically low levels right now.

Earlier today, Freddie Mac reported that the average rate for a 30-year fixed mortgage loan dropped (again) to land at 3.49%. That’s the lowest it has been since October of 2016.

It bears repeating: Mortgage rates haven’t been this low in nearly three years. So in that regard, now is a great time to buy a home.

Rate chart September 2019
Chart: Average rate for a 30-year mortgage. Source: FreddieMac PMMS.

The chart above was published by Freddie Mac on September 5, 2019. It’s based on their weekly Primary Mortgage Market Survey (PMMS), which has been tracking the industry since the 1970s.

The blue line represents the average rate for a 30-year fixed mortgage loan — the most common type of loan used by home buyers today. As you can see, rates have been following a downward trajectory for most of 2019. They began the year at around 4.5% and have since dropped to 3.49% (as of the latest reading).

Here’s something even more interesting: their latest forecast suggests that rates could be lower in 2020 (on average) than they are right now. This is a reversal from earlier forecasts, which predicted a gradual increase in 2020.

In its August 2019 “Housing and Economic Research Forecast,” the research team at Freddie Mac wrote the following:

“Thus, we have adjusted our quarterly forecast for the 30-year fixed-rate mortgage to remain around 3.6% through the second quarter of 2020. We project the annual average to be 3.9% in 2019, before sinking to 3.7% in 2020.”

Inventory Remains Tight in Most Housing Markets

In many housing markets across the country, supply is still constrained. That means there aren’t enough homes for sale to satisfy the demand from buyers.

This is partly why prices are expected to continue rising into 2020. Limited supply and steady demand (driven in part by low mortgage rates) are putting upward pressure on house values.

Inventory has increased a bit, nationwide, over the past few months. That’s a positive trend for home buyer’s, and we expect it to continue in 2020. But there’s still a relative shortage of supply in most local housing markets across the country.

Of course, conditions can vary from one city to the next. Some markets are very tight right now, while others have more supply available for buyers. A few metro areas, like Miami and Detroit, have plenty of inventory right now. But overall, it’s still a “tight” real estate market in terms of inventory.

Supply is especially tight at the lower end of the price range, where first-time buyers tend to shop. As a result, buyers who are seeking an affordable starter home could encounter some challenges.

According to an August 2019 press release from Realtor.com:

” …although overall housing inventory had been growing, the number of homes in the entry-level segment declined … The inventory of properties priced below $200,000 in July decreased 9.9 percent year-over-year…”

A Wall Street Journal article from that same month said:

“Economists said the rates could provide a modest boost to sales during the final months of this year, though few expect cheaper borrowing costs to reverse the course of a slowing market. Home sales have been weighed down by steep prices and limited starter-home inventory in many markets.”

Buying in 2020: Most Signs Point to ‘Yes’

So, to revisit the question at hand: Will 2020 be a good year to buy a home in the U.S.? Barring any financial calamities, such as a recession, next year could be a great time to buy in most cities across the country.

But there are some parts of the country where prices are declining. That could carry over into 2020 as well. In those cities, buyers might be better off taking a wait-and-see approach for now. It’s rarely a good idea to purchase a home in a declining market.

Disclaimer: This story contains forecasts for home prices and mortgage rates issued by third parties not associated with the Home Buying Institute. Such predictions are the equivalent of an educated guess and should be treated as such.