Will Housing Prices Drop in 2020?

Home is where the heart is, and it’s often where you’ve put the majority of your money. A home is a major purchase and a dream come true. It says, “You’ve made it and created a stable place for you and your family to make wonderful memories. 

In fact, buying a home will be one of the biggest financial commitments you’ll make in a lifetime. 

Therefore, it only makes sense that timing your home purchase becomes critical to realizing long-term investment benefits you can garner from that home. 

A Difficult Financial Decision

Knowing when to buy can keep you from overpaying for that home. You don’t want to buy a home only to see the value drop. Many homeowners can recall recessionary periods where they ended up buying during the peak pricing season only to see prices drop. Yet, they still had a  mortgage loan for approximately 30 years along with upkeep, taxes, renovations and more. 

Yet, you don’t want to wait in fear this will happen because prices can also continue to rise, blocking you out of the market. 

As you can see, taking that step toward homeownership is no small decision.

The Financial Forecast

Added to that difficult decision, you may have read about some economic warning signs that may signal a drop in housing prices. 

First, experts have recognized slower growth. But, does that mean a recession is on its way? According to National Association of Realtors Chief Economist Lawrence Yun, a recession is unlikely in the year ahead. “We expect 2020 to be a year of slower growth, but not a recession year. However, an all-out trade war would lead to an economic downturn in nearly every country, including the US.” He added that “the negative effects of the US China tariff fight include contracting exports and slumps in investor confidence and business spending.”

Next, the Gross Domestic Product is often an indicator of the economic climate. In 2018, the GDP was 2.9%. Then, it was 2.1% in 2019. Now, 2020 projected GDP growth is estimated at 2.2%. Unemployment is forecasted at 3.8% ,which is exceptionally low and good for everyone.

Then, some feel that the chatter about the upcoming elections, combined with the impeachment process, could affect consumer confidence and, ultimately, the housing market. 

The Impact of Potentially Lower Home Prices and Interest Rates

With this economic environment as a backdrop, there is the potential that the real estate market could slow considerably, especially for larger, more luxurious homes. This could result in lower home prices. 

For the first-time buyer, a dip in home prices is good. Affordability has stretched many two-income families to a dangerous point, especially here in California. A pull-back in home prices for starter-homes could be the break that fuels new home purchases for young families. The largest home buying group this year will be those between the ages of 25 and 34 years old. Real estate experts project a four percent increase in new and existing home sales during 2020.

The mortgage industry estimates an average interest rate of 3.8 percent for a 30-year fixed mortgage in 2020. The low interest rate will help promote affordability and encourage existing homeowners to refinance mortgages that may be at a much higher interest rate. 

However, luxury estates may be hit the hardest, especially in our local Temecula Valley market.  As baby boomers start to retire, downsize, and move to affordable cities, buyers for larger homes may be rare. Many of those homes are now 20 to 30 years old and in need of costly remodels.  

A Bright Outlook

Overall, the economic forecast looks good for those looking to buy or sell in 2020. Although no one can confidently predict the future, all indicators are pointing to a time of high consumer confidence, mortgage industry savings, and a good housing supply. It means it’s time to dive in and realize your dream of home ownership!

If you or someone you know would like more information about the current housing market and trends, visit Jonesrealtysocal.com or call Liz Jones at 951-970-4771.