January 19, 2020
We’re in the midst of the longest economic expansion in U.S. history, and economists think there’s still room to grow. A recent survey by the National Association for Business Economics found that experts believe the U.S. economy will remain positive throughout 2020.
Still, given that recessions are a natural and necessary part of a business cycle, we know this period of growth will eventually end. I’ve had many people ask me how an eventual recession might affect real estate overall and in Mammoth Lakes.
Many people assume a recession would cause a drop in housing prices like we saw in the Great Recession of 2008. But the real estate market crash we experienced wasn’t typical, and neither was that recession. It was the worst economic downturn since the Great Depression.
ATTOM Data Solutions looked at real estate prices in the last five recessions and found that, in the majority of cases, home prices actually went up. Only twice (1990 and 2008) did prices decline, and in 1990 it was by less than one percent. So here’s where experts predict the housing market is headed in 2020 and beyond.
Economists predict that housing prices in the U.S. will continue rising regardless of a recession. Property data from CoreLogic forecasts a faster rate of growth for home prices in 2020 than in 2019, with the biggest gains at the lower end of the market.
On a less positive note, Arch MI Chief Economic Ralph DeFranco expects entry-level home prices to increase faster than incomes this year, making it even more difficult for many first-time home buyers to afford to enter the market. This problem is especially pronounced in places like Mammoth Lakes where the market is saturated with second homeowners and leaves very little entry-level inventory for the local workforce.
DeFranco predicts that low interest rates and a shortage of starter homes will continue to push up prices, especially at lower price points.
“Real estate is on firm ground with little chance of price declines,” said NAR Chief Economist Lawrence Yun. “However, in order for the market to be healthier, more supply is needed to assure home prices as well as rents do not consistently outgrow income gains.”
If you have the ability to buy a home now, don’t let fear of a recession or falling prices hold you in limbo. Economists expect home values and rent prices to continue rising, so you’ll likely pay more the longer you wait. Plus, in Mammoth Lakes, we’re continuing to see a steady upward trend, especially in condos, over the years.
According to Redfin, Americans are staying in their homes longer, which means there are fewer homes available today for those who want to buy. Inventory generally increases in the spring and early summer months in Mammoth Lakes. This is when most condo owners who have been thinking about selling have earned their winter nightly rental revenue and are willing to take properties off the market during the lower nightly rent months.
It’s possible that an increase in new construction could offer some relief. The National Association of Realtors expects single-family housing starts to total one million this year, the highest level since 2007. And Lawrence Yun predicts the average price of new construction will decline slightly as builders shift to building smaller, more affordable homes.
In Mammoth Lakes, we have a different landscape as there’s very little buildable land left in town. The Town of Mammoth Lakes’ Parcel project is likely to add quite a bit of inventory to the local market, but that’s still several years away. New projects like Creekhouse and The Villas at Obsidian will add some additional inventory. Other projects are on the horizon but are unlikely to have product deliverable in 2020.
Realtor.com Senior Economist George Ratiu predicts nationwide, “In 2020, we expect inventory to struggle to grow and could instead reach a historic low level.”
If you’re looking to buy a starter home, you’ll probably have to compete for the best listings. Start your search early, and if you have a firm deadline, build in plenty of time to find the right home. This is even more important in a small town like Mammoth Lakes where the overall inventory is smaller.
Mortgage rates have declined more than a full percentage point since November 2018 when they hit a recent peak of 4.94%. The Mortgage Bankers Association predicts rates will remain low, around 3.7%, through mid-2021.
While it may not seem significant, on a $200,000 30-year fixed-rate mortgage, that lower rate means buyers could save around $145 on their monthly payment and more than $52,000 over the life of the mortgage. Lower mortgage rates make homeownership more accessible and affordable for buyers.
Although economists expect mortgage rates to stay low, they caution against waiting to act. Economic factors, shifts in supply and demand, or unforeseen impacts of the November election could cause rates to rise unexpectedly. “We recommend borrowers with long-term plans of staying in their homes to lock in a low rate now because there’s no telling how long these low rates will last,” warns Preetam Purohit, a capital markets trader at Embrace Home Loans.
If you want to buy a home, act soon to lock in a historically low mortgage rate. It’ll lessen your monthly payment and could save you a bunch in the long term. If you plan to stay in your current home, see if it makes sense to refinance your mortgage at today’s lower rates.
Millennials are expected to account for more than half of all mortgages this year, outnumbering Generation X and Baby Boomers combined. This year, the largest cohort of millennials will turn 30, and the oldest millennials will turn 39.
Many younger millennials flocked to urban centers that offered easy access to work, shopping, and restaurants. But high prices, lack of square footage, and subpar schools often drive millennials to other areas — suburbs and more rural areas — as they begin to marry and expand their families. I’m seeing more and more millennial first and second homeowners in Mammoth Lakes too.
In response to the shifting buyer market, mixed-use communities and neighborhoods that follow the live-work-play concept are increasingly popular.
If you’re a millennial who is priced out of urban living or looking for a different quality of life, looking at homes in suburbs or in a rural mountain area like Mammoth Lakes might be a good choice.
While national real estate numbers can provide a big picture outlook, real estate is always local. As a local market expert, I can guide you through the ins and outs of issues most likely to impact sales and home values in Mammoth Lakes this year.
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