Has the Market Peaked? Trends Shaping 2020

Posted on November 21, 2019

As 2019 winds down and we begin to peek at 2020, it is worth noting that the U.S. housing market has fully recovered from the 2008-09 financial crisis. Home prices now exceed the pre-collapse valuations in most areas, and we are amid the longest bull market in the history of the United States. The cyclical nature of markets is immutable, and another recession will undoubtedly arise again. Could it be in 2020? It is impossible to say, and economic forecasting is one of probability and chance, not one of fact and certainty, which means that even the surest indicators of the market do not always see their predictions realized. Now, with the uncertainty of any prediction in mind, let us review some of the current market conditions and indications and then reflect on the bearing of what they could, not will, mean in 2020.

Baby boomers own two out of every five homes in the United States, and the generation has been entering retirement at a historically unprecedented rate, which will continue to increase in 2020. This creates the looming threat of a possible suburban housing selloff due to downsizing or the inevitable: health issues and death, which would force the sale of their properties. Fortunately, many retirees are choosing to age-in-place and stay within their suburban homes into retirement due to factors such as access to internet, food-delivery systems, breakthroughs in health and safety technologies, lack of feasible alternative retirement options, and more. Ideally, this tendency to age-in-place will work to counteract – or at least mitigate – any short-term housing selloff. Long-term, suburban housing valuations may be slightly worrisome, but with our outlook being only 1 year, it is unlikely come 2020 that any relevant changes will be caused by this factor, and we can be cautiously optimistic in this regard.

Atlanta currently has a constrained home supply; very low unemployment, a steady economic growth rate, and a diminishing, yet still persistent, level of demand in it’s market which creates a short-term 2020 vision of increasing prices over this next year. All of these conditions are contingent and overshadowed by larger macro concerns about the Feds tampering with interest rates (mortgage rates as well) and trade uncertainties. With these macroeconomic concerns out of mind, however, the consensus is that the house values in Atlanta could rise more slowly, but still continue to rise, over 2020. Outside of home-ownership, demand for rentals has been booming for years – with over 300,000 renters in the city proper alone – and vacancy rates are expected to stay low throughout 2020 and beyond, meaning consistently high demand. Even in the event of a broader economic crash, the real estate market as a whole has been shown by economists such as Robert Shiller to have a delayed effect to recessions, so any broader economic recession that occurred today would likely not be mirrored within real estate prices for 6-12 months time.

Atlanta could actually benefit from the anticipated economic cool-down in 2020. In many cities throughout the nation the drastic price appreciation that occurred from 2016-18  lead to affordability issues for many home buyers in the area. Atlanta has largely avoided this but if prices continued to appreciate in 2020 as much as they have in recent years Atlanta could be in for some real affordability problems. An economic cool-down that would reduce the appreciation of homes down to around 2-3% would be good in this respect and prevent any further price outs and irrational exuberance from taking place. In addition, a cool-down will likely shift leverage toward home-buyers, and away from sellers, for the first time in years. If you are looking to buy a home, 2020 may be the time to do so as negotiations should be more favorable than in recent years.

In sum, the Atlanta real estate market is showing overall positive signals into this next year, with no factors presenting as out of the ordinary. Admittedly, ordinary is relative, but few current factors appear to likely inhibit further growth in the market. There are always the questions surrounding nationwide economic policy and trade, but the effects of these subjects affect the nation’s economy as a whole, and not Atlanta’s comparative position within it. So, it can be cautiously said that growth should, albeit at a slower pace than recent years, continue to occur in home and rental prices. Look for a mundane year within Atlanta economy compared to previous conditions, as price-appreciation likely won’t skyrocket nor falter, but remain constant and steady. Appreciate the cool-off for what it is, a hiatus from the volatility of modern day markets.

 

Written by: Max Wittling