Get Ready for Even Lower Inventory
2019 was a very interesting year for Real Estate with a couple of big surprises. The first one was Interest Rates going down! No one saw that coming but it was a boon for the market. The second one was the inventory of homes for sale in Massachusetts is ending the year at its lowest point ever before. A year ago that didn’t seem possible given the fact that the inventory finally rose above the prior year for the first time in six years in August 2018. Neither of those two important changes were expected back at the beginning of 2019.
The below graph shows the total amount of homes for sale per week going back five years.
So, What Does This Mean for 2020?
The short answer is we are headed into a very strong sellers’ market in the spring. Probably the strongest sellers’ market we have ever seen. Much more than last spring and here’s why:
- Inventory is Lower: January 2018 had the lowest inventory of homes for sale since these records have been kept and after its rising in the summer of 2018 we all assumed it would not go that low again. Well, we (and I) assumed wrong! There are currently as of today 11,715 homes for sale in Massachusetts compared to 14,120 homes for sale last year on the same day. That is a 16% decrease. This means that the beginning of January will have the lowest inventory in history which will be a new record. Worcester and other communities in Worcester County are really impacting the statewide inventory numbers. For example, today Worcester has 164 total homes for sale (singles, multi’s, condo’s) compared to 268 homes a year ago today. That is a 38% decrease in one year which is enormous.
- Interest Rates: We are starting the year with much lower interest rates. 2019 Mortgage Rates started over 4.75% and today the average rate for a 30-year fixed-rate mortgage is 3.81%. They really began to fall in February of 2019. This makes a big difference in many ways because buyers will have access to lower rates even earlier than they did last year which will kick the market into gear sooner. When rates are lower, money is cheaper, and buyers can afford more which is a boost to the market.
- The Economy is Booming: In the summer and fall of 2018 there was a lot of talk about a potential recession, but it never happened, and it appears to be nowhere in sight. The stock market is at an all-time high and is posting new all-time high records every few weeks. Unemployment is at an all-time low. Geopolitical issues seem to be calming down, with the first phase of the China trade deal almost completed, and Congress finally passing USMCA which provides the United States with much more favorable trade dealings with Mexico and Canada. November had 266,000 new jobs created and things are just plain on fire. People buy when they feel good and with the stock market looking like it will end the year up over 20%, most people are feeling good.
These three factors will have a major impact on the real estate market at the start of 2020. There is no doubt in my mind we will see more bidding wars than ever in the late winter and spring. This is wonderful news for sellers and not so good news for buyers. I say it every year and I will say it again fall is the best time to buy. This past fall was the best fall to buy in years due to the low rates and higher inventory like every fall. Those who wanted to buy but didn’t will regret it when they have to pay more this spring.
The Election
Though I feel strongly that 2020 will come out flying and be very busy, it’s important to remember that we have a Presidential election in the fall. Every fall that we have an election it’s slower and it’s especially true with Presidential elections. Given the expected level of polarization of this particular election, I will be surprised if history doesn’t repeat itself during this election. So, if you are a home seller it will be more important than ever to list early so you can make the most money and do not get crazy with your price because you could end up selling for even less.
Conclusion
I had predicted that there would be more home sales in 2019 than 2018 and it appears at this point that we will likely come up a little short. This is interesting because 2018 was also a bit less than 2017 for total homes sold. 2017 had a total of 93,881 homes sold and 2018 had 92,956 homes sold. As of November 30th, there were 83,953 homes sold. So, there would have to be over 9,000 sales in December to beat 2018. I am doubtful that it will happen, but it will be close. I blame these small decreases year over year on the low inventory especially in Worcester County in the last year.
Despite the upcoming election and lower inventory, I expect right around the same amount of sales in 2020 (about 92k) as there were in 2019 mostly due to the year starting with lower rates and the strength of our economy. Buyers will be out in force. As far as home values; bidding wars drive values up so it will be a big year for price growth. I think the average price will rise by at least 5%. As of the end of November, the average price is $459,250 compared to $440,295 which is a 4.31% increase. I have no doubt that 2020 will beat that. Time will tell if I am right on all this!