8 Homebuyer Trends to Watch - Spring 2020

While we’ve seen a very strong start to the New Year in the US real estate market, spring is well-regarded as the official house (or apartment) hunting season.

To prepare buyers for their upcoming home or apartment hunts, we’ve rounded up some of the top homebuyer trends to watch for spring 2020 and beyond. Learn about the trends, expectations, and potential market changes.

Just remember that there’s no crystal ball to definitively say that any of these trends will continue long-term. Consider all of your options and consult with a local real estate agent in your area before taking the leap into home ownership.

1) Mortgage Rates Are Expected to Stay Low 

Freddie Mac’s housing market forecast predicts mortgage rates to stay below 4% in the coming year. Current 2020 projections anticipate the average rate will hover around 3.7%, which is consistent with where they are now.

Compared to last year, home buyers taking out a $300,000 mortgage today would save about $225 per month, and $2,700 per year in interest. And the larger the mortgage amount, the higher the savings.

Locking in low interest rates can save hundreds of thousands of dollars over the life of a home loan. This could make spring 2020 a much more attractive time to buy compared to last year.

2) Savings-Oriented Brokerages Likely to Go Mainstream

It is no secret that over the past decade it's gotten increasingly difficult for homebuyers, particularly first-time homebuyers, to put down roots in major metropolitan cities. 

As a result, buyers are looking for ways to offset the high down payments and closing costs now associated with home ownership. 

A great way to save money when you buy a home is through buyer commission rebates. As a tech-enabled brokerage with salaried local agents, Prevu is able to offer rebates to buyers who purchase homes through our real estate platform. Buyers typically receive a portion of the buyer's agent commission cash back after closing — enough to offset most closing costs and even some new furniture.

3) Starter Homes Might See a New Resurgence 

Of course, buying a home is much easier said than done, especially when there’s a housing shortage in the US. For buyers interested in starter homes, the market has been especially competitive over the last few years, but that may soon change.

While labor shortages and rising material costs have made it less cost-effective for builders to focus on entry-level homes, market demands have led to a rise in smaller, more affordable homes. This is great news for first-time buyers, who have largely been priced out of larger homes in recent years.

Luxury homes are still a priority for builders due to their higher profit margins, but starter homes are now getting more attention.

4) Homeowners Will Stay in Place Longer

According to industry stats, the average homeowner is now staying in place for about 13 years; nearly double the length of time people held onto their homes just 10 years ago. With more people staying where they are, fewer homes are hitting the market.

Previously, people would frequently move due to life events such as marriage, kids, and job changes. Now, people are updating their homes as necessary, and are more likely to move to be closer to friends and family — which is less of an immediate incentive.

Americans are also holding on to their equity, which is growing steadily along with home prices. According to Nerd Wallet, American homeowners had $19.7 trillion in equity by mid-2019, and we see no sign of that changing at the moment.

5) Some Millennial Buyers Are Considering the Suburbs

As home prices rise and bidding gets more competitive, homebuyers will increasingly look to the suburbs for more space and affordability. In particular, Millennials are looking for communities with access to convenient transportation options that allow them to get around without a car when possible. They’re also looking for safe neighborhoods that have a variety of activities and attractions to keep them entertained.

The affordability of small town living often means sacrificing the conveniences that city-dwellers have come to expect. Modern hubs around major metropolitan areas provide a budget-friendly alternative that still offers flexible transit options, a robust food scene, and a reasonable daily commute, for a somewhat lower price tag.

6) Climate Change May Factor Into Buying Decisions

It’s hard to ignore the very real threat of natural disasters when buying a home. In the northeast, many neighborhoods are still in the process of rebuilding after devastating floods from Superstorm Sandy in 2012. On the west coast, tens of thousands of homes were destroyed by the California wildfires in 2018.

Aside from the threat of weather-related damage and loss, prospective home owners must also factor in the costs of insuring properties in certain danger zones. If a home is located in a region where natural disasters are becoming more common, many banks will require additional insurance to cover that risk. This could add hundreds to thousands of dollars to the annual cost of homeownership.

For these reasons and more, buyers may stay away from areas that have seen significant damage in the recent past, as well as those that are expected to see increased risk of natural disasters in the future. For current homeowners in disaster-prone areas, it could also mean lower market values in the coming years.

7) Builders Expect Strong Demand

With greater demand for limited housing, builders should see an uptick in work orders in 2020 and beyond.

New developments are constantly popping up in metropolitan areas to fill the gap in available housing, and the trend shows no sign of slowing down. There is also the opportunity to build more entry-level starter homes, which would help shoppers who are currently priced out of more high-end homes.

This past December, home builder confidence rose to its highest level in 20 years. In particular, Builder confidence in the newly built, single-family home market increased by 5 points, to 76, according to the National Association of Home Builders/Wells Fargo Housing Market Index.

8) SALT Deduction Cap Will Remain a Political Debate

Federal tax reform passed in late 2017 put a spotlight on state and local tax (SALT) deductions. A $10,000 cap was imposed on these SALT deductions that began for the 2018 tax year. This created a real estate headwind in recent years for high-income tax states like New York and California.

For context, according to IRS data from 2014, more than one third of New York tax returns previously included a SALT deduction. The average SALT deduction amount back then was $21,038.02, more than double the current limit of $10,000

In December 2019, there was some hope that the SALT deduction cap may be temporarily repealed as the House of Representatives voted on a bill to do so. However, no such measure has reached the Senate. 

The political debate on the matter will likely continue - especially in a Presidential election year. Any repeal of the SALT deduction cap would be a potential positive for real estate in high-income tax states. It will be an important topic to monitor this year.

Getting Ready for Homebuying Season

Understanding current trends and future expectations is important when considering a home purchase. Just as important, is getting your finances in order before you start shopping!

Save as much as you can to cover your down payment and closing costs. When you feel ready to take the next step, get your mortgage pre-qualification to see how much you can afford and set your budget. With your pre-qualification (and ideally a pre-approval) in hand, find a buyer’s agent to assist in the home buying journey.

These are just a few tips for homebuyers to keep in mind. If you’d like to start your homebuying journey with an expert, feel free to reach out to team@prevu.com or create your free property feed to browse listings in your area.

 

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DISCLAIMER: This material was provided for informational purposes only, and is neither intended to provide, nor should be relied upon as tax, legal, or accounting advice. Prevu and its subsidiaries do not provide tax, legal, or accounting advice. You are encouraged to consult your personal tax, legal, or accounting professionals before considering any transaction as your individual situation may vary.