- Emerging trends are arising across age demographics, and they could help illuminate what our market will look like for years to come.
- Low inventory in key segments will persist in 2020, as more buyers enter the market and homeowners remain in their current houses for longer tenures.
- Though the Fed isn’t expected to lower rates again next year, interest rates are likely to remain extremely low for all of 2020.
Sharry Schmid, president, Edina Realty
As president of Edina Realty, Sharry Schmid provides guidance and direction to nearly 2,500 REALTORS®.
Consumer confidence is relatively high and unemployment remains low, but that hasn’t stopped speculation about a looming recession. The housing market and economy are cyclical in nature, so it’s natural for economists and consumers to look ahead and try to spot changes on the horizon. While we can’t predict the future, we do have a good sense of what 2020 is likely to look like for home buyers and sellers in Minnesota and western Wisconsin, and we’ll do our best to explain what you can expect in the year ahead.
But before we forecast the year to come, let’s take a look back at how our local housing market performed in 2019.
The 2019 housing market overview
Buyers were (still) competing
If you were a 2019 buyer with a budget under the (luxury) price point of $500,000, you likely felt the pinch of competition. You weren’t imagining it! According to a fall briefing from Zonda and Metrostudy, Minneapolis and St. Paul were each among the top 15 most competitive housing markets in the country last year. Whether you were facing multiple offers or felt pressure to waive contingencies, you weren’t alone.
And while 2019’s extremely low interest rates did help to boost affordability, many buyers still felt squeezed due to fast-rising home prices and slower wage growth. The bottom line is this: 2019 buyers will pay less in interest over time, but their home buying budget may not have stretched as far as they’d hoped.
Sellers were (still) celebrating… mostly
Meanwhile, sellers in the lower- and mid-tiered local market had plenty of reasons to celebrate. According to NorthstarMLS, 2019 sellers in the Twin Cities metro recouped more than 98% of their original list price when they sold homes priced under $500,000. They also received those offers quickly; the median days on market for homes in this pricing tier reached 43 days in January and fell as low as 15 days in June.
The luxury buyer pool tends to be quite a bit smaller, but this year’s high-end sellers still benefited from higher-than-usual competition. Homeowners who sold for above $500,000 recouped more than 96% of their original list price throughout 2019, meaning they very rarely had to discount their luxe properties. A slowdown did occur in February and March, when homes remained on the market for 100 days before selling. But luxury homes have been selling at a faster clip in recent months, with days on market remaining under seven weeks since May.*
A primary issue for 2019 sellers is that once they entered the market as a buyer, they saw the other side of the competitive market and high prices.
What’s ahead in 2020
Home sales do tend to slow down during the fall of a general election, but the housing market should still be buzzing for most of 2020. While there won’t be a significant shift in the market next year, new trends are emerging. Here’s what we predict for next year’s buyers and sellers in Minnesota and western Wisconsin.
- Rates to remain steady and low. The Fed lowered rates three times in the second half of 2019 and experts don’t expect 2020 rates to change significantly in either direction. Freddie Mac’s research team predicts that 30-year fixed rate mortgages will average a rate of 3.8% in 2020. Overall, buyers can still anticipate more buying power than in years past.
- Supply and demand will remain at odds. In the coming years, as both Gen Y and Gen Z continue to enter the housing market, buyer demand is expected to rise. That means that in order to reach a balanced market, a continuous rise in inventory is needed, too. Unfortunately, we aren’t expecting a major increase in housing supply in 2020. Buyers in those low- to-mid-tier price ranges should expect continued competition.
- New construction is on the rise, but it won’t solve our inventory issue. While new housing starts are on the rise, high permit costs and a continued labor shortage mean that new housing stock still won’t be able to keep up with demand in 2020. Moreover, builders are still concentrating on luxury homes, so new construction will remain out of reach for a large subset of buyers.
- Appreciation will continue to rise. Sellers and current homeowners will love to hear that experts project home prices to rise 5.6% by September of 2020, outpacing 2019’s slower gains but still remaining low enough to be considered moderate. Chalk it up, again, to high demand and low supply — the perfect recipe for home price appreciation.
- Unemployment will remain low in 2020, wages to rise slightly. Experts predict that monthly job growth may slow next year, but that’s not necessarily bad news. In fact, it’s likely due to our low unemployment numbers. When so few people are unemployed, there are fewer workers available for hire. Full-time base salaries are expected to increase 3%, the same rate as they have for the nine years since the recession recovery began.
For different demographics, different needs
In 2020, the biggest shifts in our market may occur not due to interest rates, or even inventory — but due to the changing landscape of buyers and sellers. Here’s how different demographics are expected to act (and react) in 2020.
Gen Z (aged 0-21)
Think it’s impossible to buy a house at age 18 or 20? A recent report shows that mortgages by Gen Z buyers doubled last year. So while this generation isn’t expected to take over the housing market for another decade, the first Gen Z homebuyers are on record.
Millennials / Gen Y (aged 22-37)
Much has been made of this generation and their delayed entry into the housing market. But after years of boosting their credit and savings, their time has come. In September, nearly 50% of the country’s mortgage originations were initiated on behalf of millennials, who have stated that homeownership is a goal that outranks even marriage and children.
In 2020, first-time buyer millennials may be the generation most heavily impacted by the low supply, high-demand dynamic of the market. Here’s why: After years of renting or living with parents, many millennials may hope to skip the starter home phase and move straight toward long-term homeownership in a “forever home.” With prices still on the rise and competition fierce among buyers, they may have to adjust their expectations or go after a fixer-upper they can turn into their preferred long-term abode.
Gen X (aged 38-53)
As Gen X reaches career highs and their kids grow older, they may be prepping for a housing upgrade. And, they may find that the equity they’ve built up means that they’ll cash out for more than they’d ever hoped for (especially if they white-knuckled it through the market downturn).
Once they enter the buy-side, though, they may have sticker shock at the houses that truly fit their needs. Higher-end houses don’t always reflect current tastes and trends, so Gen X move-up buyers may want to enter the market knowing that they’ll have to knock down some walls in order to create the master suite or open floor plan they’ve been dreaming of. Another option is to go for a fully-customized new construction home — so you can call the shots and upgrade in style.
Baby Boomers (aged 54-72)
The generation that reshaped the nation is, once again, bucking trends. Many baby boomers are nixing retirement communities in favor of aging in place — either in their long-term residence or in a smaller, accessible home that will suit them as their needs change. Whether it’s a one-story villa in a robust new construction community or revamping their family home to include a main-floor master suite with laundry, boomers are doing it their way.
Read our top tips for aging in place or downsizing intentionally.
The Silent Generation (aged 73-91)
According to the Census Bureau, just 5% of U.S. residents over the age of 70 moved in 2019. Like boomers, some members of the Silent Generation are choosing to age in place while others have already moved to senior communities or in with relatives.
There’s also a third path — the homeowners who are overwhelmed by the process of downsizing or selecting their next residence. If you’re a relative or guardian of a senior who needs help with a housing transition, read our insights here.
Need real estate help in 2020?
If you’re preparing to buy or sell this year, we have nearly 2,500 Realtors working throughout Minnesota and western Wisconsin. Contact Edina Realty or your agent to get the conversation started.
Looking for more resources to help guide your buying or selling experience? Download our easy-access guides, free of charge:
* Based on information from the REGIONAL MULTIPLE LISTING SERVICE OF MINNESOTA, INC for the period January 1, 2019 through October 31, 2019.