On Real Estate & More – February 2020

As we head into a new year as well as a new decade, one of the big questions many people have is about the stability of the real estate market. Lucky for me, the company I work for has their own economist that provides quarterly projections as well as an annual meeting about this very topic. The following is a summary of his projections for the 2020 economy and real estate market.

Following the significant drop in corporate tax rates in early 2018, economic growth experienced a big jump. However, those gains have slowed and will likely continue at a slower rate. Furthermore, many businesses remain concerned over ongoing trade issues with China. In 2020, it is expected that the rate of growth will slow and add fewer new jobs. Due to this hiring slowdown, the unemployment rate will start to rise, but still remain historically low.

Many economists spent much of 2019 worried about the possibility of a recession in 2020. Thankfully, such fears have started to decline (at least for now), though the possibility of a slowdown in 2021 is very high. That said, it is expected that any drop in growth should be mild and not negatively affect the U.S. housing market.

Nationwide real estate sales should rise around 2.9% to just over 5.5 million units. Home prices will continue to rise as mortgage rates remain very competitive. Look for prices to increase 3.8% in 2020 as demand continues to exceed supply and more first-time buyers enter the market.

The new-home market has been pretty disappointing for most of the year due to significant obstacles preventing builders from building. Land prices, labor and material costs, and regulatory fees make it very hard for builders to produce affordable housing. As a result, many are still focused on the luxury market where there are profits to be made, despite high demand from entry-level buyers.

This year should still be very positive from a home-financing perspective, with the average rate for a 30-year conventional, fixed-rate mortgage averaging under 4%. That said, if there are significant improvements in trade issues with China, this forecast may change, but not significantly.

In Oregon, the State added over 29,000 new jobs in 2019, representing an annual growth rate of 1.5%. The current pace of job growth has slowed and that trend is anticipated to continue. The unemployment rate still hovers around levels not seen since the late 1960s. Real estate price growth continues to slowly increase. Continuously-low mortgage rates will allow prices to continue rising, but at slower rates than over the past several years.

Although sales activity slowed, there appears to still be significant demand for housing. Inventory levels, although rising, are still low. Given economic vitality in the state and low mortgage rates, I expect to see more home buyers start their search for a new home. The market will also continue to favor home sellers, but we will start to move more toward balance, resulting in another positive year overall for U.S. housing.