Sales of new homes probably will rise to a 13-year high in 2020 as the U.S. dodges a recession, according to Lawrence Yun, chief economist of the National Association of Realtors.
New-home sales probably will jump 11% to 750,000, according to Yun’s new forecast, which would be the highest reading since 2007.
Sales of existing homes likely will increase 3.7% to 5.56 million in 2020, the highest tally since 2017, Yun said.
“Some loosening in inventory will happen in 2020, and so we expect home sales to rise,” Yun said at NAR’s convention in San Francisco. “We’ll see an increase in inventory, but not any oversupply, so home prices should continue to move higher – our hope is in a much tamer fashion.”
Yun said he expects the median price of an existing home in the U.S. to be $270,400 next year, rising 4.3% from 2019. That would be a slower pace than the 4.9% annual gain in the median price he forecasts for 2019 and the 5.7% recorded for 2018.
The median price for a new home probably will be $313,500, down 4% from 2019, but that could stem from a shift toward smaller houses as builders try to meet demand from first-time buyers.
The average U.S. rate for a 30-year fixed mortgage probably will stay at 3.7% through the second quarter of 2020, Yun said. In 2020’s final two quarters, it likely will rise to 3.8%, he said.
Talk of a U.S.-China trade treaty has caused bond yields to rise in recent weeks, which could influence investors in mortgage securities to demand higher returns. But, Yun said he expects “sub-4” rates to continue through 2020.
“We’re seeing some bond yields rising, but we even with some fluctuation, I think mortgage rates will be slightly under 4% for 2020, and the reasoning for that is the Fed communication saying they would not be raising interest rates in 2020 given that the inflation rate is under control.”
The Federal Reserve cut its benchmark rate by a quarter of a percentage on Oct. 30 in a bid to keep the decade-long U.S. economic expansion going while signaling it likely was done, for now.
It was the Fed’s third consecutive quarter-point cut as the central bank tries to bolster a slowing economy.
“I think we will not face an economic recession,” Yun said. One reason, he said, is the economic stimulus provided by homebuilding.
“We need to produce more homes,” he said. “If we produce more homes, that is an economic stimulator and that growth will prevent us from going into a recession.”
Homebuilding – or “fixed residential investment” in economic language – contributed 0.18% to GDP in 2019’s third quarter, according to the Department of Commerce. It was the first positive reading in six quarters.