As 2019 comes to a close, we look back at what has been a fairly robust economy in the US this year. The question is: what will 2020 bring and how will that affect the housing market? I attended a First Republic Bank holiday luncheon recently where a talk was given about what to expect in 2020. I will provide you with a few of the highlights from their presentation, and my thoughts, here.
The Year of Two Halves
For 2020, the representatives of First Republic predict that it will be a year of two halves, with the first half expected to be stronger than the second half. In the first half, the economic fundamentals will remain healthy and global industrial conditions will bottom out. There will be a trade deal tailwind and a softer US dollar, and earnings growth will help stocks. The second half involves the presidential election wild card with increased volatility, and an expected tightening of profit margins.
Overall, the probability of a recession has lessened, and the US economy is anticipated to grow moderately but remain healthy, with continued mild inflation and strong labor markets. The 10-year U.S. equity bull market is anticipated to remain intact with moderate real returns. Geopolitical uncertainty will continue to drive waves of volatility.
Stock recommendations for 2020
First Republic economists believe investing in U.S. equities is favored over emerging markets or Europe due to moderate U.S. economic growth, which supports higher U.S. stock prices. They believe you should take advantage of market highs to sell some stock and set aside some cash reserves.
The Housing Market Takeaway
How does all this affect the housing market?
Mortgage interest rates peaked in 1981 at 18% and in recent years, rates have hovered around 4.5% and are now down to 3.8%. Low interest rates have increased demand and more people are employed with higher wages. However, supply is down and fewer new homes have been built since 2008. This has resulted in prices going up and there appears to be no change to this going forward into 2020.
I can tell you that economists had thought, earlier, it was not going to be a good Spring, but people are showing a lot more confidence in the market than we had anticipated, and Spring may be a hot market again. So, sellers should, and will be, out there with their properties. And if you’re looking to buy, the remarkably low interest rates provide an incentive to buy sooner rather than later. It may sound paradoxical; however, conditions are lining up to be good for both buyers and sellers in the first half.
Still the outcome in November is very uncertain – as we all know! And as the year moves on people will be distracted with the election and there will be less focus on moving, since people respond to risk by being more conservative and tighter with their money. With that uncertainty, we can expect a softer market in the second half with fewer sellers putting their properties on the market and fewer buyers willing to jump into the real estate market.
I can only put so much in a short blog post, however if you would like to talk through your strategy as a buyer or seller (or both), please give me a call! And, have a Happy New Year!