Real Estate Industry Trends Look Strong Into 2020

by Chuck Biskobing

When we launched our blog, we promised we’d scour the headlines to curate valuable and relevant news in the real estate world. Today we give you the second in a series of expert commentaries penned by our own Chuck Biskobing, attorney and trend watcher. Chuck’s occasional blog series will be an ongoing opportunity for him to interpret the real estate climate. We invite you to contact Chuck (or any of us) to share in the discussion.

The Federal Reserve Board (the Fed) cut rates on October 30th for the third time in 2019. More important though was the Fed speak around this rate cut. Many observers had predicted the Fed would signal an end to the short rate cutting cycle begun in July, and the Fed delivered. There will be no more cuts unless the economy shows some real weakness.

The three cuts this year were intended to provide a little support to the business community and consumers that had expressed fear because of the trade war. Of great interest to many people was the Fed’s statement that there will be no rate increase unless the Fed sees significant signs of inflation. So, it seems we are at the current rate for some time barring major economic changes.

What does all this mean for the real estate community?

Mortgage Volume to Exceed $2 Trillion in 2019

First, after bottoming around 4% in late August/early September, mortgage rates rose slightly in the weeks leading up to the most recent meeting. I believe this is related to the market belief that the Fed would pause/stop rate cuts. Since the cut, rates have more-or-less held steady at just under 4%. Mortgage volume has remained high, with week-over-week refinances up nearly 150-200% from last year at this time. 

Purchase volume is also higher, but only around 10% higher than at this time last year. Mortgage volume should exceed $2 trillion dollars this year and will be the highest since 2016. Homebuilder sentiment in the second half of 2019 has been higher than any time since late 2017, early 2018 (and near the highest on record). The Case-Shiller Home Price Index shows slower price appreciation this year, but there have still been gains of around 2%. Basically, the industry is thrilled with the Fed’s recent cuts and signaling.

But can the party go on forever?

Home Demand Remains Strong – But Low End is Underserved

With low rates and national unemployment at a multigenerational low, demand for homes remains strong.  Affordability is the biggest headwind to purchase volume continuing its upward trend. The lower tier of the market in particular is underserved; I would almost go as far as to say the lower half of the market is underserved. The supply of homes in this price range is not large enough to cover demand. This shortage may affect the market going forward if wages don’t increase or supply to fill this market need doesn’t materialize.

Affordability May Hinder Market

In the past couple of years, volume slowed when buyers got discouraged that there were no homes available that they could afford. Unfortunately, building costs (labor, materials, and regulatory costs) remain high, so few builders want to work in the lower half of the market. Despite these affordability concerns, so far transaction volume is not slowing.

That said, to keep the party on track we need to see wage gains or increased supply of homes at reasonable prices. The Fed seems unable or unwilling to lower rates from here without proof of an economic slowdown. So cheaper money is unlikely to further boost the market.

2020 Presidential Election May Lead to Uncertainty, But Party Goes On

Overall, I think home sales volume will remain strong as long as the job market stays strong, but downside risk is increasing. Typically, presidential elections mean uncertainty, and uncertainty causes businesses to pause investments. Whether that leads to layoffs or just continuation of the status quo remains unclear.

But, for at least the next six months or so, I think the party keeps rocking.   

Chuck Biskobing, associate attorney at Cook & James, devours information and distills research from his work as a closing attorney and personal interactions with builders, agents, loan officers and other industry insiders. He’s licensed in Georgia, South Carolina, North Carolina and Connecticut and has participated in more than 5,000 real estate closings. To counter all the geeky screen time and paper work required to stay current on the real estate climate, laws, news and industry trends, Chuck is an avid outdoor adventurist who has hiked Mt. Kilimanjaro, scuba dived in Zanzibar and once took a five-month hiatus to hike the entire 2,189 miles of the Appalachian Trail.