Well, 2019 is set to come to a close. It’s certainly been an interesting year (and decade), surely one to remember.
But now it’s time to look forward to what 2020 might bring with regard to the housing market, mortgages, and so on. Let’s dive in.
You can see my 2019 predictions here.
1. Mortgage rates will go down
As always, we tackle mortgage rates first. The forecasts have been wrong year after year lately, with most pundits calling for an end to the ultra-low rate era.
But over time, it has become apparent that this is simply the new normal for rates. They probably aren’t going back to 5-6% anytime soon.
Instead, expect 30-year fixed rates closer to 4%, as they have been for years now. In 2020, we might even see new all-time lows if the election, Brexit, or other geopolitical events really shake things up.
If you’re a home buyer or a refinancer, 2020 will be yet another favorable year in the financing department.
2. Home prices will go up (limited inventory, but not a seller’s market)
Now let’s talk home prices, which don’t have a clear correlation with mortgage rates. No, one doesn’t go up while the other goes down, despite many assuming that.
While we’ve already seen the really stellar years of appreciation since bottoming nearly a decade ago, the end of home price appreciation isn’t quite here yet.
In fact, 2020 should be another solid year in terms of home price growth, likely mirroring the 5-6% gains seen in 2019.
That means even more home equity for those who already own a home, and perhaps a little less sticker shock for those in the market to buy, with prices not all that different from the year prior.
If your wages have increased since then, it may not look all that bad, especially if low interest rates make your home loan financing that much more affordable.
I believe we’ll continue to see a healthy balancing of the housing market between buyers and sellers, though some markets nationwide will continue to be more competitive than others due to a serious lack of supply.
3. Builders will build more homes
Speaking of housing supply, expect home builders to really ramp up their building in 2020.
Fannie Mae is forecasting almost 1 million single-family starts next year, representing a near-10% increase from a year earlier.
That should begin to ease demand in areas that need it, though it may take more than a year or two for it to really show since these projects take time to be completed and marketed to buyers.
The question is will home builders get it right this time around, or overshoot the mark again?
4. Low down payment mortgages will dominate purchases
With regard to financing those new home purchases, I expect a lot of low-down payment mortgages to be involved.
I’m talking the 3% down offered by Fannie and Freddie, 3.5% from the FHA, along with zero down from the VA, USDA, and other individual lenders.
It seems low- and no-down is back en vogue, especially with competition a bit lower in today’s housing market.
Again, this could be an ominous sign we are returning to the dark days of the early 2000s. However, the underlying mortgages should still be a lot cleaner.
5. More quick refis from recent home buyers
I also expect the trend of buy-to-refi to continue in 2020. Many of those who refinanced in 2019 had just acquired their mortgage, but thanks to rate improvements, it was beneficial to refinance just months later.
This drove a lot of refinance volume in 2019, and probably will do the same next year.
As I said, we could see new all-time lows in mortgage rates, so recent buyers, along with not-so-recent buyers, may benefit from a rate and term refinance (or cash-out).
That’ll be great news for mortgage lenders who rely on refis to post big numbers, as the purchase market will likely be just marginally higher than in 2019.
It also means you can do better your second time around if you made some missteps on your first mortgage go-around.
6. More iBuying replacing traditional real estate agents
The disruptors have been around for some time now, and they continue to grow market share and take from the traditional channels.
This includes iBuyers, such as Offerpad, Opendoor, and Zillow Offers, who are gently pushing out real estate agents with their instant all-cash offers.
Unfortunately, these companies are keeping more for themselves in exchange for a little convenience. As I’ve said, homeownership requires constant work.
Part of that is putting in the time/effort to buy and sell a home thoughtfully. You can rush it if you want, but it’ll cost you. Potentially a lot.
7. Cash out refis will be big
While the number of cash out refinances has increased in recent years, the total dollar volume is still a drop in the bucket compared to the early 2000s.
Expect more homeowners to cash in on their home equity in 2020 as mortgage lenders look for new strategies to boost their own pipelines.
With more homeowners ageing in place or simply not moving because there’s nowhere to move, they may instead pull out cash to make much-needed renovations. Or simply to pay for other stuff.
Americans are sitting on a ton of equity, so it’s really a matter of when, not if. And they’ve been sitting on it for a while…
8. Faster digital mortgages will become the norm
Mortgages have been getting faster and faster in recent years thanks to advances in technology.
Nowadays, borrowers have the ability to seamlessly connect financial accounts to an application, forgo a home appraisal, or participate in an eClosing.
We’ve been hearing claims of mortgages in a week, a matter of days, or with the push of a button.
In 2020, I think we get closer to the elusive instant-mortgage, thanks to wider spread adoption of existing and new technologies.
Speed and convenience is becoming more of a selling point for mortgages, so look for a greater number of lenders to offer things like on-time guarantees.
Of course, getting it right (and for a good price) is more important than getting it done fast.
9. Mortgage broker share will rise
Not all mortgages can be streamlined. Some continue to take time, whether it’s because the borrower is self-employed, the property is unique, or some other unconventional scenario.
One group that excels when it comes to tricky or outside-the-box stuff are mortgage brokers. They’ve been actively gaining back market share since nearly going extinct after the Great Recession.
And 2020 will probably be another banner year for the group, thanks in part of better technology leveling the playing field, and a more diverse origination mix.
They’ve also got a new group doing a better job communicating the benefits of using a mortgage broker.
10. We’ll be one year closer to the next housing crisis
While I do see 2020 being another solid year for both real estate and mortgage, it might be time to start thinking about what’s next.
This housing rally has gone on for quite a while, and we’re certainly well into the late innings in terms of bust to recovery to expansion.
We’ve probably still got a few more good years, but that window is really beginning to narrow.
There’s a lot to start worrying about if we want to avoid making the same mistakes that felled us a decade ago.
My hope is we don’t overbuild and throw underwriting standards out the window again, damaging another generation that seems to finally be warming to the idea of homeownership.
Happy New Year!
(photo: Marco Verch)