Will the U.S. Housing Market Continue to Rise in 2020?

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Highlights from this report:

  • For two weeks, we invited readers to send us their housing questions.
  • The number-one question: Will the housing market continue to rise?
  • This appears to be a top concern among future home buyers.
  • Forecasters say prices will continue to rise in 2020, but more slowly.
  • When you drill down to the city level, it’s more of a mixed bag.

Will the Housing Market Continue to Rise in 2020?

This was the most common question sent in by readers (along with variations of the theme). Will the housing market continue to rise? Will home prices continue to climb? Will the real estate market keep going up? Apparently, this is something on the minds of a lot of Americans.

Many housing analysts are now predicting that home prices will continue rising in 2020, but at a slower pace than what we’ve seen over the past few years. In August, for example, Zillow made the following prediction about home prices nationwide:

“United States home values have gone up 5.2% over the past year and Zillow predicts they will rise 2.2% within the next year.”

The chart below shows the company’s proprietary “House Value Index” for the U.S., dating back ten years or so. It also shows their forecast for the next 12 months (in the green shaded area to the right). From a home-price perspective, the research team at Zillow expect the housing market to continue rising into 2020.

Home prices through August 2019
Chart: Median home value in the U.S. | Source: Zillow.com.

Granted, that’s just one forecast — and an educated guess, at that. But it’s part of a growing chorus of voices that are saying the same thing. The general consensus seems to be that the U.S. housing market, as a whole, will continue to rise into 2020. Though we probably won’t see the kinds of gains we saw in 2017 or 2018.

A July 2019 press release from S&P Dow Jones Indices stated: “Data released today for May 2019 shows that the rate of home price increases across the U.S. has continued to slow.”

Look at the latest real estate reports and studies, and you’ll see words like “slowing” and “cooling” come up repeatedly. That’s where we are right now, as of late summer 2019.

From an economic standpoint, we could actually benefit from a slowdown in home-price appreciation. House values have been rising abnormally fast over the past few years, outpacing wage growth along the way. This had created affordability problems for a lot of would-be buyers, often pricing them out of the market entirely.

If home prices rise more slowly in 2020, it could ease some of these problems and give wages a chance to “catch up.”

A Mixed Bag at the City Level

All of the above applies to the nation as a whole. When economists and analysts say they expect home prices to continue rising, they’re usually talking about the median price for the entire nation. But that figure isn’t very useful to a person buying a home in Charlotte, North Carolina or Portland, Oregon.

Local real estate conditions can vary quite a bit. We might say the housing market in general will continue to rise in 2020. But when you drill down to the city level, the outlook is more mixed.

As of August 2019, some local housing markets across the country were experiencing a drop in prices. And that trend could carry over into 2020 as well.

Back in July, we reported the home values were dropping in several major cities and leveling off in others. In those kinds of real estate markets, now might not be the best time to buy a house. The market might not continue rising into 2020. It might be the start of a sustained downturn, during which home buyers are better off taking a wait-and-see approach.

To quote the S&P Dow Jones Indices report again:

“Though home price gains seem generally sustainable for the time being, there are significant variations between YOY rates of change in individual cities. Seattle’s home price index is now 1.2% lower than it was in May 2018, the first negative YOY change recorded in a major city in a number of years. On the other hand, Las Vegas and Phoenix, while cooler than they were during 2018, remain quite strong at 6.4% and 5.7% YOY gains, respectively.”

So, will the real estate market continue to rise in 2020? That depends on which one you’re referring to. This is why it’s so important for home buyers to conduct plenty of localized research before making a purchase.

A Look Back: The Rise & Fall of Home Prices

To understand where we are — and where we might be going — it helps to look back at where we’ve been. Real estate markets tend to follow cycles, after all. And from a real estate context, the past 12 years could be summed up as follows:

  • Early 2000s: In the early 2000s, the U.S. real estate market was on fire. Demand for homes soared. Builders built new properties at a record pace. And house prices rose rapidly on a wave of strong demand.
  • 2005 – 2007: Unfortunately, much of the housing market activity mentioned above was fueled by “shady” mortgage loans offered to people who couldn’t afford them. The first half of the 2000s saw the rise of all kinds of high-risk mortgage products, such as the “stated-income” loan and the payment option ARM loan.
  • 2008: The U.S. housing market collapse began in earnest in late 2007 to early 2008. It was largely caused by the risky loans mentioned above. Suddenly, millions of Americans could no longer afford their mortgage payments. So they stopped making them. The mortgage industry ground to a halt. Home prices plummeted. And the U.S. economy plunged into a deep recession.
  • 2008 – 2011: When the housing market crashed, home prices fell in most U.S. cities. Some cities saw a mild dip in prices, while other cities (like Phoenix, Las Vegas, and most of California) experienced a tremendous drop in home values.
  • 2012 – 2018: There is no official “start date” for the U.S. housing market recovery. After falling steadily for several years, the nation’s median home price turned north again in 2012. So that’s as good a date as any to mark the start of the recovery. From 2012 to 2018, home prices in most U.S. cities rose steadily — and sometimes significantly. House values rose so fast during those years that many cities (particularly those along the West Coast) began to experience affordability problems.
  • Late 2018 – early 2019: By the start of 2019, home prices in most parts of the country had fully recovered from the housing bust (and then some).
  • Late 2019: And that brings us up to the present. We are now into the second half of 2019. The economy is in pretty good shape again. Unemployment is down. The job market is robust. But the real estate market is undergoing a kind of shift. It’s not a strong “seller’s market” anymore. In most cities, homes are now taking longer to sell. Price reductions are more common. Home prices have slowed in some cities, plateaued in others, and started to drop in some places.
  • 2020: No one can predict future housing market trends with complete accuracy. But we can make an educated guess. Here’s ours. We expect home prices nationwide to rise more slowly in 2020 than in 2019. We expect to see more local real estate markets shifting to favor buyers over the coming months. We expect 30-year mortgage rates to remain below 4%, on average, for the foreseeable future.

Disclaimer: This story contains predictions and forecasts relating to home prices and other aspects of the housing market. Those forward-looking views are the equivalent of an educated guess and should be treated as such. The Home Buying Institute (HBI) makes no claims or assertions about future housing conditions.