Forecast: Top 5 Mortgage & Housing Trends Affecting Buyers in 2020

The end of the year is days away. That means it’s time for an annual tradition here at HBI. It’s time for our roundup of mortgage and housing market trends that could affect home buyers in 2020. There’s quite a lot to talk about actually. So let’s dive in.

5 Housing Market Trends Affecting Home Buyers in 2020

Loan limits have increased. Mortgage rates will probably hold steady going into the new year. First-time buyers could have trouble finding a “starter home.” And house prices will likely continue to climb in most U.S. cities throughout 2020.

Those are a few of the mortgage and housing market trends and predictions for 2020 that we’re tracking. Let’s take a closer look at them.

1. Loan limits have been increased for 2020.

This isn’t so much a prediction, as a fact. The loan limits for FHA, VA and conventional mortgage programs have been increased for 2020. This is true for most counties across the country, though there were a few counties were the limits declined.

Let’s start with the “conforming” loan limits. These apply to conventional mortgages that are not insured or guaranteed by the government.

In November 2019, the Federal Housing Finance Agency announced that the maximum limit for a conforming loan would go up to $510,400 in 2020, an increase from the 2019 cap of $484,350. Pricier real estate markets, like San Francisco and New York City, have limits of up to $765,600. Anything above these thresholds would be considered a jumbo loan.

Conforming loan caps vary by county, because they are based on median home values. Here’s a list of the 2020 conforming limits for every county in the United States, in PDF format.

Federal housing officials have also increased the caps for FHA loans. These mortgage products receive government backing via the Federal Housing Administration. That distinguishes them from the conforming mortgages mentioned above. In 2020, FHA loan limits will range from $331,760 to $765,600 depending on the county.

That’s the first big mortgage trend for 2020. Let’s shift gears and look at another important housing market trend and prediction for 2020. This one has to do with inventory levels.

2. Housing market inventory remains tight, going into 2020.

This is another major trend home buyers should be aware of, especially those shopping at the lower end of the price range. Residential real estate inventory has been hovering at historically low levels for the past few years. And now they’re dropping yet again.

According to a report published in December by Realtor.com, housing market inventory in the U.S. declined by 9.5% in November 2019 compared to a year earlier. Of course, this varies by region. Some local real estate markets have move inventory than others. But overall, supply remains tight as we move into 2020. This is a housing trend that could affect a lot of home buyers in 2020.

The metro areas with the steepest decline in housing supply were San Diego (-28.1 percent); Phoenix (-24.1 percent); and Rochester, N.Y. (-22.4 percent). 

A few metro areas saw a rise in inventory levels. They included Las Vegas (+14.4 percent), Minneapolis (+11.5 percent), and San Antonio (+7.2 percent). Home buyers in those areas should have more properties to choose from in 2020. But these markets are an exception to the rule. Most cities have experienced a decline in overall housing supply.

A separate report published by RE/MAX back in November showed a similar trend. They reported a 9% year-over-year decline in housing market inventory nationwide. (That’s based on their analysis of 54 major markets across the country.)

3. First-time buyers could struggle to find “starter homes.”

Housing inventory has decreased across the board, as mentioned above. But it remains especially tight at the lower end of the pricing spectrum. This is a housing market trend we’ve seen through much of 2019, and it will be a factor in 2020 as well.

First-time buyers seeking a lower-priced starter home could be affected the most. According to the Realtor.com report cited earlier:

“The inventory of homes priced below $200,000 decreased by a substantial 16.5 percent year-over-year in November [2019]…”

4. Mortgage rates could hover below 4% well into 2020.

Here’s another important prediction for the housing market in 2020. Experts believe that mortgage rates will remain below 4% over the coming months, and possibly for most of 2020.

As of mid-December 2019, the average rate for a 30-year fixed mortgage was 3.73%. That’s based on the weekly industry survey conducted by Freddie Mac. Back in January of 2019, rates were averaging 4.51%. So they dropped over the course of the year.

Looking forward, economists are predicting they’ll hover within their current range for the foreseeable future. In their latest Economic and Housing Research Forecast, the team at Freddie Mac wrote:

“We expect [30-year mortgage] rates to remain low, falling to a yearly average of 3.8% in 2020 and 2021.”

So in that regard, the housing market of 2020 could be very similar to 2019. Home buyers should be able to take advantage of low rates for the foreseeable future.

5. Home prices will likely continue to rise in most markets.

In most cities across the U.S., house values have risen steadily over the past year. And experts are predicting more of the same as we move into 2020.

With that being said, we could see smaller price growth in 2020 compared to the past couple of years. According to the Freddie Mac housing market forecast cited earlier:

“House price growth will continue to decelerate through 2021 with annual rates of 3.2%, 2.9% and 2.1% in 2019, 2020 and 2021, respectively.”

Prices will likely rise fastest at the lower end of the pricing spectrum. That’s because of the supply-and-demand imbalance mentioned earlier (see housing trends #2 and #3). In many cities, there’s a severe shortage of lower-priced “starter homes” right now. But there are plenty of buyers competing for those properties. This could move prices north at a pretty good pace in 2020.

In December 2019, the property analytics company CoreLogic published a blog post entitled: “Peering into the Housing and Mortgage Outlook with 20/20 Vision.” In that article, author and housing economist Frank Nothaft wrote the following:

“But with supply expected to remain lean, especially for lower-priced homes, look for a quickening in price growth and for lower-priced homes to appreciate more than higher-priced.”

This is an important point for first-time buyers who are planning to buy in 2020. In most housing markets across the U.S., a strong case could be made for buying sooner rather than later. Those who wait could end up paying more for a property.

Granted, home prices aren’t rising in every U.S. city. As we’ve noted in the past, there are “pockets of depreciation” here and there. Seattle, Washington; Portland, Oregon; and much of the Silicon Valley region of California fall into that boat.

But for most local housing markets across the country, house values are expected to continue climbing in 2020. This is especially true for entry-level starter homes at the lower end of the pricing spectrum.

So there you have them, five important housing market trends and predictions for 2020. Happy holidays!

Disclaimer: This article includes projections and forecasts issued from third-party sources not associated with the Home Buying Institute. Such predictions are the equivalent of an educated guess and should be viewed as such.