Last year at this time, interest rates were rising, the stock market was dropping, housing sales had slowed dramatically and we had no idea what 2019 would bring. Who would have believed then that 2019 would yield the highest gross dollar sales volume in Arizona Regional MLS history? While 2019 numbers have yet to be finalized, this year is on track to outpace record-setting 2005 and take the top spot for median home prices and volume.
What will happen as we enter the new decade?
Here are our predictions for 2020:
Valley Growth Will Continue to Fuel Sales
Maricopa County remains the fastest growing county in the country. We regularly have new buyers coming to market who are leaving high tax states and snowy winters. Our local economy also continues to boom. We have had a 42% increase in job creation since 2000 compared to 16% for the rest of the country. Wages are rising, unemployment is low, and our local economy has diversified with a plethora of companies who have started, expanded, or moved in from other states. In 2020, that economic growth will continue to bring more buyers to our market. The strong growth will support our local market even if the national market softens.
Interest Rates Will Remain Low
Based on all our conversations with lenders and several presentations that we have heard from national economists, interest rates are expected to remain below 4%, especially through the election. Dr. Lawrence Yun, Chief Economist for the National Association of Realtors, expects rates to average 3.7% in 2020. Low rates will open the doors for more first time homebuyers to enter the housing market and make it possible for borrowers to buy more house for their money.
Because new home construction was constricted for so many years, housing inventory will remain on the low side in 2020. Homebuilders may just barely reach 24,000 single-family building permits this year, and while that is a huge improvement over the last 10 years, it is still less than half of the 60,000 permits that were issued in 2005. First time homebuyers, investors, and downsizing retirees are still all competing in the same market segment. Below the $350,000 price range, we are continuing to see homes that are overvalued for their condition. If they are in great shape or priced right, they usually quickly sell over list price with multiple offers. One more thing, many of those new homes we mentioned above were sold after April of this year and those homes are finally nearing completion. As more of those new builds are completed, we expect those buyers to finally put their existing homes on the market. We hope this will help increase the inventory a little bit as we enter 2020.
Talking about inventory…
Currently, there are only 30 single-family homes for sale below $150,000 in the metro Phoenix area (and many of these are barely habitable). The best of the bunch was a flip at 35th Ave and McDowell listed for $150,000 but with only 780 sq ft! Right now, the lowest priced single-family home on the market in Gilbert is $235,000 (1,262 sf) while the lowest priced single-family home in Scottsdale it is $324,000 (1,506 sf).
Millennials Will Drive Homebuying
According to the latest Bank of America Homebuyer Insights Report, 72% of Millennials say that homeownership is one of their most important life goals. Homeownership ranked above marriage (50%), having children (44%) and traveling the world (61%). Millennials will continue to be challenged to meet their goals by rising home prices and limited inventory. Down payment assistance programs are still out there for first time homebuyers, however, we are seeing more Millennials buying homes using down payments gifted to them by family members.
“Hipsturbia” Will Be A Thing
As Millennials become parents and Gen Z contemplates purchasing their first homes, rising costs are causing them to leave the inner city in search of “Hipsturbia,” suburbs with dining, shopping, entertainment, jobs, walkability and more affordable housing. While downtown Mesa won’t become the next Brooklyn overnight, expect all suburban dwellers to benefit from this trend in 2020 as entrepreneurs expand coffee houses, breweries, independent restaurants, and boutiques beyond urban centers to cater to younger consumers.
Home Values Will Continue To Rise
The average home sales price is up 6% year-over-year. With solid local economic growth predicted for 2020, buyers and sellers can likely expect to see another 5% growth in 2020 as a result of continued population growth and limited housing inventory.
The Wrap Up
All in all, the market is favorable for sellers and competitive for buyers. Low interest rates will continue to motivate buyers, while limited supply will keep potential sellers from listing their homes because they aren’t finding the properties that motivate them move. Consequently, many potential sellers will simply stay put and remodel instead. Economists anticipate that the presidential election will slow the market in November, as is usual for an election year. So, if you are looking to sell in 2020, strongly consider listing by the spring.
As always call us anytime with your real estate questions. We are happy to provide you with tailored market information for your property and help you simplify your next move!