What’s in store for the U.S. housing market in 2020? With low interest rates, modest inflation and a solid labor market, there are many reasons to be optimistic about housing in the coming year.
In 2019, a sustained drop in mortgage rates and a strong labor market helped the U.S. housing market to rebound in the last few months of the year and heading into 2020. So, what do you need to know about the economy, housing and mortgage markets next year?
The economy continues to stand firm: This year, we set a record for the longest period of economic growth in U.S. history. Going into 2020, solid job gains, low interest rates and lower financial market volatility should lead to favorable economic conditions, which should help boost the housing market.
The labor market is strong: A low unemployment rate is a good indicator of a strong economy because more people are participating in that economy. Today, we are seeing an unemployment rate near record lows at 3.5%. Additionally, the U.S. labor market is expected to continue chugging along with job gains helping support stronger homebuyer demand.
Mortgage rates are low: Throughout the first half of 2019, mortgage rates were on the decline, marking the fourth lowest annual average for the 30-year fixed-rate mortgage in Freddie Mac’s weekly survey since 1971. As we head into 2020, mortgage rates are expected to remain low, averaging around 3.8%. With house prices expected to rise moderately, low mortgage rates will help support affordability.
There is high demand, but limited supply: The 2019 housing market was marked by a rebound in demand and limited supply. In 2020, demand will continue to rise but home sales activity will be constrained by the lack of supply. While low mortgage rates will help support affordability, the lack of inventory will continue to be an affordability headwind the market has to contend with in 2020.
OPTIMISM HEADING INTO 2020 (12/23/19)
Sustained economic growth, low interest rates, and a robust labor market helped the U.S. housing market regain its footing in 2019.
Early in 2019 housing market activity contracted as the shock of higher interest rates in 2018 and early 2019 the 30-year fixed mortgage was above 4.5% from April 2018 to January 2019 worked through the system. But interest rates fell throughout 2019 providing a boost to a housing market which also benefited from robust job growth and low unemployment. With the favorable economic environment projected to continue, the housing market is primed for modest growth in 2020 and 2021.
We expect mortgage rates to remain low over the next two years, averaging 3.8% in 2020 and 2021. The housing market will continue to stand firm: home sales will increase from 6.0 million in 2019 to 6.2 million and then to 6.3 million for 2020 and 2021, respectively. House price growth will continue to decelerate through 2021 with annual rates of 3.2%, 2.8% and 2.1% in 2019, 2020 and 2021, respectively.
The low mortgage rate environment led to a surge in refinance mortgage originations. However, as mortgage rates hold steady, we will likely see refinance originations begin to slow next year.
We expect refinance originations to be $846 billion in 2019 before slowing to $650 billion and $475 billion in 2020 and 2021 respectively. Modest increases in home sales and house prices will boost purchase mortgage originations for the foreseeable future. We expect purchase originations to rise steadily to $1,261 billion in 2019, then $1,333 billion in 2020, and finally rising to $1,377 billion in 2021.
**Excerpts From Articles by Freddie Mac via Economic Focus for Informational Purposes Only**