The housing market benefitted during 2019 from mortgage and unemployment rates both below 4%, the first time this has happened in the post-World War II era. In 2020 we expect more of the same: while economic growth will likely be slower than during 2019, it will be sufficient to continue sub-4 readings for mortgage and unemployment rates.
This economic environment should add to first-time buyers’ desire to own. But with supply expected to remain lean, especially for lower-priced homes, look for a quickening in price growth and for lower-priced homes to appreciate more than higher-priced. Our Home Price Index Forecast has prices up by more in 2020 than in 2019. (Exhibit 1)
Rising home prices will create more home-equity wealth in 2020, helping to sustain consumption spending. It also means that overall delinquency and foreclosure rates will likely remain at or below current levels, already the lowest in more than 20 years.
But with higher prices comes lesser home affordability, and it affects renters too. Our Single-Family Rent Index found rents up 3% nationally over the past year, about double the rate of inflation. As shelter takes a bigger bite out of families’ pocketbooks in 2020, a solution is to build more homes.
We expect more housing starts in 2020 than in 2019, but these new homes will generally add supply in the higher price and rent buckets, not in the less expensive tier. In part, this reflects the rising costs of labor, land and materials, which have risen about twice as fast as inflation over the last three years. (Exhibit 2) Our CoreLogic Construction Cost data have found each major material cost has outpaced inflation since 2016, and this trend is expected to continue next year.
One final point: Local neighborhoods may deviate widely from the expected national trends. As an example, while our U.S. Home Price Index is forecast to rise, our Market Risk Indicator has identified several metro areas that will likely see price declines. (Exhibit 3) And delinquency rates will rise in locales affected by a weakening economy or by a natural disaster.
Best wishes for a healthy and successful 2020!
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 As reported by the Bureau of Economic Analysis, the Personal Consumption Expenditures Price Index increased 5.3% between September 2016 and September 2019.