At the end of every year, analysts, economists, strategists and market pundits all start to come out with their predictions for the coming year. That’s the case for stocks and interest rates, gold and oil, currencies, the broad economy and even sectors within the economy. Outside of the jobs market and retail spending influencing gross domestic product, one of the most crucial components of the U.S. economy is what is happening within housing. Home prices and rental rates have continued to climb every year since the Great Recession, and a deficiency in new home construction and limited supply of available and affordable homes have contributed to the rise.

According to Realtor.com’s outlook for 2020, millennials have now taken over in dominating home buying activity over baby boomers and the smaller Generation X. The problems that have been in place are likely to persist in 2020, and home inventories in 2020 might reach historic lows. Realtor.com even expects that a 6% rise in single-family construction will not be enough to keep up with demand.

Even though mortgage rates are expected to remain low at 3.85% on average in 2020, there is a lack of supply in the affordable and entry-level homes. Realtor.com also says that buyers were “just over overpaying” for homes and that the market has “hit the ceiling of crazy price growth.” Overall home price appreciation is currently predicted to rise by only 0.8% in the coming year.

Some geographic trends are worth noting. The forecast calls for Texas, Arizona and Nevada to see an influx of home shoppers who have been priced out of California. Elsewhere, homebuyers from northeastern markets are expected to head to the Midwest or Southeast for more affordable housing, along with solid and diversified economies.

With the oldest millennials turning 39 in 2020, that generation is expected to dominate with more than 50% of all mortgages being taken out. Some other statistics about housing and the economy as a whole were included in the Realtor.com 2020 housing forecast:

• Existing-home sales are projected to be down by 1.8%.
• Single-family housing starts are projected to rise by 6%.
• The homeownership rate is projected to be 64.6%.
• Mortgages rates expected to hit 3.88% by year-end.
• GDP growth is projected to rise by 1.7%.
• Consumers likely will trim back on non-housing spending.
• Companies likely will contain costs and trim employment goals, with the unemployment rate expected to rise from 3.6% to 3.9% by year-end.
• The Conference Board’s Consumer Confidence Index is estimated to decline by 21%.
• And inflation is projected to be 2.0% in 2020, and interest rates and mortgage rates are expected to move mostly sideways.

As for how the forecasts look for buyers and sellers in 2020, the report said:

Buying a home in 2020 will offer opportunities for some buyers, as the supply of new homes relieves some of the inventory pressures, and prices moderate. While the inventory of new homes in 2019 remained focused on the high-end, as the luxury market cools, builders signaled their intent to increase offerings in the mid-price segment, a much-needed shift in market dynamics. First-time buyers will continue to struggle with affordability, even with mortgage rates in an approachable range, as entry-level inventory is expected to remain constrained. The broad price moderation will continue to offer opportunities in mid-sized markets in the Midwest and South.

Sellers in 2020 will contend with flattening price growth and slowing activity, requiring more patience and a thoughtful approach to pricing. Sellers of homes priced for entry-level buyers can expect the market to remain competitive and prices to stay firm. At the upper end of the price range, however, properties will take longer to sell, and incentives will be needed to close deals. As the market moves toward a more balanced scenario, sellers who adjust to local market conditions can expect to benefit from continuing demand.

The 2020 election is a wildcard that has to be considered. If you have tried selling a home in a controversial election cycle, you probably understand this without much explanation needed. The report said:

Political elections can have an impact on the economy and housing markets. While the outcome of elections is not directly tied to the performance of the markets, expectations linked to a party’s or an administration’s likely legislative or regulatory actions can sway confidence and decisions. When either party gains control of the legislative and executive branches, there’s a higher likelihood of seeing shifts in the rule-making process and the regulatory environment.

Looking at housing trends over the past three decades, the pace of sales, price and inventory are intertwined with economic performance—employment, wages, and interest rates. The outcome of elections does not weigh directly on trends in housing. However, business optimism and investments, along with consumer optimism and spending do influence economic output, and can also influence housing activity.

The 2020 elections will be closely watched by consumers and businesses for indications of potential changes. Along with the presidential election, there will be candidates running for 35 of the 100 seats in the U.S. Senate, along with 435 seats in the House of Representatives.

The full report shows a lengthy city-by-city breakdown for sales and price growth. What should stand out is that in many cities and locales the total number of sales and the assumed home prices are both expected to contract.

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