All signs point to a strong housing market in 2020

Thanks to increased wage growth, a slowing of home price appreciation and a predicted surge in first-time buyers, the new year should start off with a bang

Lew Sichelman is a seasoned writer with 50 years of covering the housing and mortgage markets under his belt. His biweekly Inman column publishes on Tuesdays.

The tea leaves heading into next year are somewhat mixed. But for now, it looks as though the housing market in 2020 should at least start off with a bang.

The Mortgage Bankers Association, which held its annual convention late last month in Austin, Texas, expects mortgage originations for people buying houses to hit $1.29 trillion in next year, up 1.6 percent from this year. Every purchase money mortgage originated equates to one house sold. And remember: Some people don’t even need a mortgage to buy a house.

Given the somewhat cloudy economic outlook resulting from geopolitical uncertainty and the general malaise globally, the MBA’s chief economist, Mike Frantantoni, also believes mortgage rates will, on average, “remain lower for longer.”

And as if that’s not enough good news, Frantantoni also is looking for the growth in house prices to decelerate over the next few years as additional housing supply comes to market.

“Moderating price growth is healthy,” he said in Austin, “as it allows household income to catch up with home values. This improvement will lead to more home sales, especially given the rise in household formations and growing demand from first-time buyers.”

On that last point, TransUnion, one of the big three credit repositories, released a report at the MBA convention that predicted “at least” 8.3 million first-timers will enter the housing market between 2020 and 2022. And that number could climb as high as 9.2 million if economic growth exceeds expectations.

Both of those figures are a marked acceleration from the 7.6 million rookie buyers added in the three-year period 2016-18, TransUnion said.

As did the MBA economist, TransUnion’s Joe Mellman noted that the market has been hampered by high prices, sluggish wage growth and a lack of inventory. “But we may be starting to see daylight as slowing price appreciation, low unemployment, increased wage growth and low interest rates are helping affordability,” he said.

Consequently, Mellman added, “We are optimistic that first-time buyers will contribute more to home ownership than at any time since the start of the Great Recession.”

TransUnion’s analysis is based on an October survey of 943 people who have never owned a home but expressed interest in buying one within the next three years. This group of potential buyers tended to be younger than they were around the time of the last big economic turndown, with the median age falling from 39 to 36.

“There has been a lot of discussion in the marketplace that younger people today may not be as interested as prior generations in buying a home and being tied down to one location,” Mellman said. “Our survey results suggest that this is not the case at all.”

Before we get too carried away, however, a new report from the National Association of Home Builders shows that only 12 percent of all adults plan to take the housing plunge over the next 12 months.

That doesn’t sound very encouraging. But the good news is that figure is practically unchanged from where it stood a year ago — 13 percent.

The NAHB’s third quarter Housing Trends Report found that three out of every five buyers moving forward will be novices buying their first-ever residences. That’s roughly the same as a year ago, too.

Millennials age 23 to 38 are the most likely to purchase homes within the next year, followed by GenXers age 39 to 54. Boomers, on the other hand, are the least likely to venture forth. And in keeping with other forecasts, 76 percent of the GenXers and 75 percent of the millennials will be greenhorns.

And therein could be the rub, because TransUnion found that only a third of its respondents said they understand the lending process, and just 1 percent said the process was easy. And even among these people, misguided perceptions abound. Two-thirds, for example, mistakenly believe they needed a high credit score. Two in five think they need a big downpayment. And one in three are unfamiliar with their loan product options.

Meanwhile, Freddie Mac, the big secondary mortgage market company, is out with its latest forecast which call for sales to increase somewhat slightly next year. It says 6.1 million houses will change hands next year as compared to an estimated 6 million this year.

“The housing market remains on solid ground with housing starts, building permits, existing home sales and new home sales all outperforming the broader economy,” said Chief Economist Sam Khater.

Better yet, Khater sees only a slight uptick in loan rates, from 3.7 percent for the rest of 2019 to 3.8 percent in 2020.

Happy trails!

Lew Sichelman is a seasoned writer with 50 years of covering the housing and mortgage markets under his belt. His biweekly Inman column publishes on Tuesdays.

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