ATLANTA - According to realtor.com, there could be a housing supply crisis in 2020.
- Next year will be hard on the housing market, especially in some major cities. Atlanta is not among those predicted to be hard hit.
- As demand heats up in the spring, driven by the growing number of millennials entering the market, the supply of homes for sale could hit its lowest level in decades.
That’s the 2020 forecast from realtor.com, which holds one of the largest databases of housing statistics available.
Three major factors are contributing to this prediction:
1. Entry-level homebuyers may face a shortage of homes from which to choose as builders focus on higher-priced new construction and shy away from starter homes.
This may seem an odd prediction. The economy is booming and unemployment is almost non-existent. In addition, homebuyer demand remains strong.
It’s all about supply. The inventory of homes for sale has been falling steadily for several years and is at its lowest on the bottom end of the market. That caused prices to overheat, weakening affordability. Their 2020 forecast offers no relief, in fact just the opposite.
As demand heats up in the spring, driven by the growing number of millennials entering the market, the supply of homes for sale could hit its lowest in history. The situation will only be exacerbated by the baby boom generation, which, according to the forecast, will have little incentive to sell, given weaker home prices.
While millennials are entering the housing market in large numbers, they have been marked by a delay in major life milestones, including getting married and buying a home.
Meanwhile, home builders are still experiencing a slow recovery from the Great Recession, and are building fewer entry-level homes in favor of middle and upper-level houses that yield more profit per unit.
Millennials will dominate the housing market, accounting for 50% of all mortgages by spring, according to the forecast. Just short of 5 million millennials will turn 30, which is when many people buy their first home, and the oldest will turn 39, generally when family dynamics kick in and people move to larger homes in the suburbs.
2. The shortage of entry-level homes, both new and resale, has caused high demand in rentals, which both encourages construction of new rentals and discourages baby-boomers from selling.
Homebuyers responded positively to lower mortgage rates this summer, leading to a higher home price appreciation across most markets, including Atlanta.
But more homeowners are staying longer, according to real estate brokerage Redfin, which analyzed Census data.
The typical American homeowner has spent 13 years in their home, up from eight years in 2010, as more households are choosing to age in place.
3. The supply of entry-level homes is also well below historical levels because during the foreclosure crisis, investors bought millions of distressed properties and turned them into rentals. The bulk of these properties were on the lower end of the price spectrum.
The expectation was that as home prices recovered, investors would sell the homes, pocket the profits and return the housing supply to its previous level. That did not happen.
The single-family rental market was so strong that investors held the homes, enjoying higher than expected rental income and creating a new asset class for even bigger investors to fuel.
BOTTOM LINE: Entry-level homebuyers may face a shortage of homes from which to choose as builders focus on higher-priced new construction and shy away from starter homes. And even though interest rates are likely to remain low during the next year, investors are enjoying higher rental income as prospective buyers are unable to make the jump to ownership.