For the first time since the post-World War II era, the US housing market benefitted from less than -4% unemployment and mortgage rates during 2019. CoreLogic’s chief economist, Frank Nothaft, anticipates more of the same for 2020.
The only difference Nothaft sees is that economic growth in 2020 will be slower than it has been in 2019.
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According to CoreLogic’s Home Price Index Forecast, home prices in 2020 will rise to +4.8% from 2019’s +3.6%. Such a rise would be spurred by increasingly declining supply, especially for lower-priced homes.
The good news about potentially higher home prices in 2020 is two-fold: more home equity wealth will be created by higher home prices in 2020 which will, in turn, help sustain consumer spending; and, higher home prices in 2020 will help overall foreclosure and delinquency rates to remain at or below current levels which are the lowest rates in more than 20 years.
The bad news about potentially higher home prices in 2020 is lower affordability for both buyers and renters. CoreLogic’s Single Family Rent Index in 2019 indicated rents increased more than +3% nationally. That rent increase translated into twice the rate of inflation in 2019.
Looking at new home construction as a solution to higher home prices is a logical response however, the cost of building materials for new homes is higher than inflation rates. Check out the increasing building materials costs from September 2016 through September 2019:
- Inflation – +5%
- Drywall and insulation costs – +8%
- Lumber and steel – +9%
- Masonry and roofing – +11%
- Plumbing and electrical – +12%
And remember that the cost of labor, as well as the decreased availability of labor, has gone up as well.
Nothaft projects more housing starts in 2020 BUT those starts will likely add to the supply of higher-priced homes and rent brackets rather than to the supply of low tier, much more in demand houses.
CoreLogic’s Market Risk Indicator points to three states in which price declines have a 50-50 chance of happening in 2020. Those three states include Louisiana, Arizona and Florida. Additionally, CoreLogic cautions that delinquency rates may rise in areas affected by weakening economies and/or large natural disasters.
Thanks to CoreLogic’s Frank Nothaft for source data.