By Brian Nelson, Founder and Principal of NB Private Capital
With a new decade upon us, how are you feeling about the housing market? In April of 2019, 61 percent of Gallup Poll respondents answered that “now is a GOOD time . . . to buy a house.” They’re not wrong. Freddie Mac’s November 2019 report concluded that the US housing market will “continue to stand firm” in 2020.
According to CBRE, “investment volume should total between $478 billion and $502 billion, making it one of the strongest years on record.” So by these accounts, the housing market is anticipated to continue on a similar trend throughout the ’20s.
That’s not to say you should start buying or investing without a second thought. Here are five important potential predictors for 2020 and what they could mean for you.
1. Home sales are rising and mortgage rates are staying low.
According to the National Association of Realtors (NAR), home sales will rise by 3.4 percent in 2020. This is in large part due to low mortgage rates. In 2019, 30-year mortgage rates stayed low, hovering around 3.7 percent. According to Freddie Mac, those rates will rise only slightly to 3.8 percent in 2020. In 2019, low rates encouraged a rise in refinance mortgage originations, translating to $789 billion in single-family refinance mortgage originations. In 2020, it will stay strong at $785 billion.
2. The risk of cyberattacks is increasing.
Cybersecurity is a growing concern no matter what industry you look at. In the first half of 2019, reported data breaches “rose more than 50 percent compared to the same period last year.” for commercial real estate (CRE), these breaches translate to “a decline in company/property valuation, tenant relationship damage, and theft of [personally identifiable information].”
That doesn’t mean that we need to live in fear of attack. Deloitte Insights recommends that CRE organizations increase the involvement of leaders and board members in technology adoption, automate and outsource cybersecurity processes, address third-party risks, and design privacy directly into new technologies and processes.
3. Home prices are going up.
In August of 2019, pending home sales grow by 1.6 percent, and year-over-year contract signings rose by 2.5 percent. Commenting on the growth, NAR chief economist Lawrence Yun noted that it was encouraging to see buyers responding to exceptionally low interest rates. “The notable sales slump in the West region over recent years appears to be over,” he says. “Rising demand will reaccelerate home price appreciation in the absence of more supply.” Supporting Yun’s point, Freddie Mac predicts that home prices will rise by 2.8 percent in 2020.
4. Housing inventory is going down.
As home sales and prices increase, the housing market is facing a shortage of inventory. In September of 2019, the national housing inventory fell 2.5 percent annually. After 18 months of growth, the number of homes priced at $200,000–$750,000 (a price range making up 60 percent of the market) flatlined. And that supply is expected to decline in coming months.
According to Robert Dietz, chief economist of the National Association of Home Builders, the market is in the middle of a “perfect storm of supply side challenges.” He explains, “There has been an ongoing labor shortage, we lack the necessary land and lots to build homes, we’ve had building material cost concerns, and then probably the most important factor has been higher regulatory costs since the great recession.”
5. The market is going green.
In the past, ESG (environmental, social, and governance) issues had little to no importance for investors. Not so anymore. More than 50 percent of millennial investors claim that ESG policies play a part in their investment decisions. And industry players are responding to this trend; Boston Properties issued $1 billion in green bonds in 2018, followed by another $850 million in June.
Despite the challenges of cybersecurity and a diminishing inventory, 2020 is shaping up to potentially be a strong year for the housing market, rising sales and home prices, low mortgage rates, and increasingly eco-friendly practices. If ever you’ve considered investing, now may be the perfect time to consider making that resolution and take the plunge.
Not an offer to buy, nor a solicitation to sell securities. Securities offered through Emerson Equity LLC, member FINRA and SIPC. Emerson is not affiliated with any other entities identified herein. All investing involves risk. Past performance is not an indicator of future performance. Speak to your finance and/or tax professional before investing.
NB Private Capital is a sponsor of The DI Wire, and the article was published as part of their standard directory sponsorship package.