2020 Housing Market Predictions: More buyers + fewer homes = more bidding wars

Prediction #1: Bidding wars will rebound thanks to low mortgage rates and a lack of homes for sale

Low mortgage rates will continue to strengthen homebuying demand, but due to a lack of new homes for sale and homeowners staying put longer, there will be fewer homes on the market in 2020 than in the past five years. More demand and less supply mean bidding wars will rebound in the first quarter. We expect about one in four offers to face bidding wars in 2020 compared to only one in 10 in 2019. This increase in competition will push year-over-year price growth up to 6% in the first half of the year, considerably stronger than the 2% growth seen in the first half of 2019. Supply and demand will become more balanced later in the year as more listings of new and existing homes hit the market, allowing price growth to moderate to 3%.

Prediction #2: 30-year fixed mortgage rates will stabilize at 3.8%

Throughout 2020, 30-year fixed mortgage rates will remain low, hovering around 3.8%. Faced with slowing economic growth, the Federal Reserve will keep interest rates low. Although the housing market is strong, weakness in other sectors, like manufacturing, is pulling down on the economy. Because investors are already bracing for the possibility of a recession, we don’t expect mortgage rates to fall much lower than 3.5% in 2020 even if the economy weakens. And even if the economy strengthens, we expect mortgage rates to stay below 4.1%. 

Prediction #3: For the first time, Hispanic Americans will gain more wealth from home equity than white Americans

In the next decade, Hispanic Americans will, for the first time, gain more home equity than white Americans. That’s because the majority of new homeowners are Hispanic, and home values in Hispanic neighborhoods are increasing faster than in white neighborhoods. There are more Hispanic homeowners in Texas than in any other state and Texas cities are likely to experience strong gains in home values over the next decade as people move here from more expensive places like San Francisco and Los Angeles. 

Hispanic families will likely benefit from home-equity gains for generations to come. Hispanic Americans could tap their home equity to finance their children’s education or to start businesses. Over time, this will improve economic equality for Hispanic Americans. 

Prediction #4: Climate change will become a bigger financial factor for homebuyers and sellers

In 2020, homebuyers and sellers will take the consequences of climate change into account when deciding to buy. The financial costs of climate change are already becoming more tangible as fire and flood insurance premiums rise. “More people are becoming hyper-sensitive to flood insurance and its costs,” said Houston Redfin agent Irma Jalifi. “They’re thinking about how the weather will change over the next decade and whether there will be more historic floods like we’ve experienced recently. I had a buyer back out of a deal because he found out the property required flood insurance.”

Over the next decade, higher insurance premiums in high-risk areas will make housing even less affordable to more people. And in areas with the highest risk, insurers may stop providing insurance altogether, which means it will be nearly impossible to secure a mortgage in those areas.

Prediction #5: Charleston and Charlotte will lead the nation in home price growth

Affordable Southeast cities like Charleston and Charlotte are attracting an increasing number of migrants from expensive cities, which will drive up home price growth in these areas. Charleston saw a 104% annual increase in the number of Redfin users looking to move in, relative to the number of users looking to move, out in the third quarter of 2019, and Charlotte saw a 44% increase. Migrants are attracted to the growing economies of Charleston and Charlotte—Microsoft is spending $23 million to expand its Charlotte campus, and in Charleston, the new Volvo plant is adding thousands of jobs. 

“A lot of migrants from up north or out west move to Charleston because it is such a lovely place—out of towners fall in love with our Cypress gardens and world-class beaches,” said Redfin agent and team manager Jacie Paulson. “The fact that we have an international airport means that companies are more willing to allow their remote employees to live here because it is easy to travel back and forth to headquarters. We also have a strong local economy with jobs at Boeing, Volvo, and in the military.”

Prediction #6: More city streets will become car-free

In 2020, we will see more cities favor green modes of transit and actively discourage driving. Some cities already have plans in the works—San Francisco’s Market Street will transform into a car-free corridor in 2020, and New York City drivers will have to pay to drive into the heart of the city beginning in 2021. In cities that become less car-friendly, those that frequently spend time in the city-center will place more value on a commute that doesn’t require a car and move to either the walkable city center or close to public transit. Meanwhile, some people will choose to avoid the city-center altogether and put a higher value on homes in the suburbs where they can work, play and live.