This year was another strong one for the U.S. and Denver housing markets, and we feel optimistic that conditions in 2020 will be similar. Why? In addition to what we’ve experienced working with our clients, we’ve studied the predictions of industry leaders in housing-market analysis. Here are some key factors that will influence the housing market next year and what the experts think might happen as a result.

Mortgage Interest Rate Predictions for 2020

Freddie Mac’s Economic and Housing Research group predicts that mortgage rates will remain around 3.8% next year for a 30-year, fixed-rate mortgage (they’re at 3.93% right now). Because rates will remain low but not decline, Freddie Mac expects that refinance numbers will remain strong at $834 billion, but down slightly from $846 billion in 2019.

Similarly, Realtor.com forecasts that mortgage rates will average 3.85% during 2020, and Redfin concurs with Freddie Mac’s 3.8% interest rate prediction. The consensus is that the Federal Reserve will keep interest rates down.

Information from the Fed’s December 10–11 meetings show that Federal Reserve Board members and bank presidents anticipate that the federal funds rate will remain at 1.6%, throughout 2020, then rise to 2.1% in 2021 and 2.4% in 2022. They also expect low inflation (1.9%) and unemployment (3.5%), and modest GDP growth (2.0%).

Fannie Mae’s national single-family home loan limit for conforming mortgages in 2020 will be $510,400. In Denver, a higher cost of living area, the limit will be $575,000, an increase of $13,800 over 2019.

Home Sales and Home Price Predictions for 2020

Freddie Mac predicts that 6.1 million homes will sell in 2020, up slightly from 6.0 million in 2019. Meanwhile, Realtor.com expects a 1.8% drop and 5.23 million in home sales for 2020, but that’s only for existing homes, whereas Freddie Mac’s figures include new homes.

Freddie Mac predicts that 6.1 million homes will sell in 2020, up slightly from 6.0 million in 2019

Freddie Mac expects home prices to grow by 2.9% in 2020, according to its November 2019 Economic and Housing Research Forecast. That’s slightly higher than the expected inflation rate of 2.0%. Realtor.com is less optimistic, predicting price growth of just 0.8% for the United States, and a slightly higher 1.7% for the Denver metropolitan area.

Realtor.com thinks Colorado Springs will be the nation’s 7th hottest housing market for 2020 as buyers look for relief from the pricey Denver market. Both cities are near the top of U.S. News and World Report’s Best Places to Live: Denver ranks 2nd, and Colorado Springs ranks 3rd. The median home price in Colorado Springs is $312,000, while in Denver, it’s $422,000.

Economists expect household income to grow in 2020. Combined with low mortgage rates, home shoppers can anticipate more buying power next year. The outlook for mortgage availability is neutral, according to Morningstar’s December 2019 U.S. Housing Outlook.

Economists expect household income to grow in 2020. Combined with low mortgage rates, home shoppers can anticipate more buying power next year.

Housing Inventory Predictions for 2020

Realtor.com expects continued inventory shortages nationwide, especially for entry-level homes. Redfin says more buyers and fewer homes will lead to more bidding wars: specifically, they think 1 in 4 offers during 2020 will involve a bidding war compared to 1 in 10 during 2019.

Denver County only had 1.3 months’ supply of single-family home inventory in November, according to the Colorado Association of Realtors. Townhomes and condos had a 2.2 month supply. That means if no new homes came on the market, all the existing homes for sale would be snapped up in just a couple of months. Around 6 months’ supply is considered a balanced market; we are very much in a seller’s market, which can make negotiating a challenge for home buyers.

What about new construction? Labor remains scarce and land prices remain high, so Morningstar’s equity analysts only see 3% to 5% annual construction growth on the horizon. While single-family homes remain far more popular, scarce land and limited household savings have increased the relative demand for multifamily homes. Next year, construction is expected to begin on 925,000 single-family homes and 375,000 multifamily units, a 3.6% increase over 2019 but not enough to fix housing shortages.

In a CNBC interview, Realtor.com’s chief economist notes that restrictive permitting laws and the unaffordability of the many high-end luxury homes being constructed are contributing to the housing shortage. He says supply may catch up to demand in 2 to 5 years.

Another factor affecting inventory is the mortgage rate lock-in effect. Because so many people have purchased or refinanced at low mortgage rates, they have little incentive to sell unless their buying power increases substantially.

Over the next 20 years, housing inventory nationwide is expected to expand by 20 million homes as baby boomers move out and move on. Much of this expansion, unfortunately, will be associated with people losing their loved ones. It’s not the type of inventory growth we’re exactly celebrating.

Zillow questions how popular this inventory will be since the younger generations may have different tastes. Location and size are hard to change, but matters of taste can be changed through renovation, which may become more important than new construction when this shift happens. Zillow estimates that 9.5% of Denver’s home inventory will be released by homeowners age 60 + by 2027, and 23.1% by 2037.

Conclusion

A robust economy is good for the housing market, and the stock market has increased by 25 percent since the beginning of the year. Fannie Mae Chief Economist Doug Duncan said in a press release that the U.S. economy should “produce solid, if not spectacular, growth” in 2020, and that single-family home construction and home sales should continue to be strong, albeit slightly less so than in 2019. Each of the experts has a slightly different take, but the overall messages are similar.

We’re mindful that the economy and, consequently, the housing market will likely be affected by the ongoing trade war with China and the presidential elections. Still, we think the experts have factored these uncertainties into their predictions, so based on what we know now, we expect good things for both the U.S. and Denver housing markets in 2020.