NORTH SHORE REAL ESTATE PERSPECTIVES FOR 2020
A recent report by RIS Media asks the real estate experts what they think is coming for 2020. While there may be broad and sweeping thoughts on real estate, usually these articles are national in scope. We all know real estate is local, right?
(RIS Media delivers real estate industry news, trends, best practices, events, social media, and technology for agents and their clients.)
Here’s what the experts say and how I interpret it (in red) for the North Shore communities of Winnetka, Wilmette, Kenilworth, Glencoe, Glenview, and Northfield.
Everyone felt it at the start of the year—conditions leveling, the market yin and yanging. About half of Power Brokers sensed it, too—that the current cycle’s ending, and a different dynamic’s emerging.
ME: Without a doubt that happened in the North Shore - but at the start of 2018.
“The housing market is in the midst of a normalization period, one that is characterized by slowing price growth, moderate sales and new supply that is slow to market,” according to Ralph McLaughlin, deputy chief economist and executive of Research and Insights at CoreLogic, a data provider.
ME: Yes, this is true here and has been happening for about two years.
Earlier this month, CoreLogic’s Home Price Index—different from the Case-Shiller report—found overvalued prices in 37 percent of the largest markets in the nation.
ME: Overpricing is an ongoing issue which I’ve written about for years in my blog. The fact that the market is sluggish does not have seem to have an influence on anxious sellers. Sellers that are still “testing the market” will be sorely disappointed and those who are prepared and ready to sell are being realistic and pricing properly (which can mean pricing lower than hoped for.)
“Right now, we’re expecting home price growth to recover somewhat from the 16-month cooling period it just went through and to settle out around 4-5 percent year-over-year by next fall,” McLaughlin says.
ME: The 3rd quarter statistics for 2019 compared to 2018 showed some significant drops in home prices - from 2% to 8%. I would love to see them rebound at the 4-5% rate but can’t make that prediction. North Shore property taxes and older home stock that isn’t popular right now might put a damper on that much of a recovery.
RIS MEDIA (a consensus on mortgage rates)
Then there’s interest rates, which are currently at lows, and aren’t expected to move much in 2020. In a forecast from the ULI, the 10-year Treasury rate—correlated to fixed mortgage rates—rises in 2020 and 2021, but only slightly.
“There’s just no evidence that there’s going to be upward pressure on rates any time soon,” Johnson says. “As long as we have a positive slope to the yield curve, as long as we have a stable economy, I don’t see many interest rate increases.”
Beracha confirms rates “may go half a percent in either direction, but I don’t see them [rising substantially] in the next year,” adding “the [Federal Reserve] decreased interest rates twice in the last couple of months—I don’t think we’re going to see much more of that.”
“Barring a significant, positive development in the U.S.-China trade discussions, Brexit, or other significant current geopolitical dilemma, I imagine that mortgage rates will remain near their current, multi-year lows” in the near term, says Speakman.
ME: Who am I to argue with that. Mortgage rates have barely budged and it’s the one thing that could help nudge sales next year.
“The labor market remains in good shape but has recently shown signs of slowing,” says Speakman. “Should job creation slow markedly and/or consumers become bearish on the state of the economy, it’s likely that home-buying would slow.”
ME: this seems obvious and is what makes realtors the most nervous. Real estate is the canary in the coal mine when it comes to downturns. Way back in 2006 I began to see worrying trends in spite of the spiked market. I had no idea what would happen, but looking back, the real estate market was speaking long before it dropped bottom.
“One comforting factor that can neutralize an economic downturn is if home-building activity occurs,” Yun says. “When home-building increases, generally, we don’t have an economic recession.”
ME: Home building in the North Shore is an entirely different beast than in the national view. There are no vast tracts being developed here - rather a single house replacing an older house. The market for new construction homes has not wavered much over the years - they have always been popular.
More recently though, the largest of them have been languishing and even price reductions have not motivated buyers. The bulk of new construction is under $2 million and the average sale price of new construction homes in the past 12 months was $1,800,000. And currently, there are 28 new homes for sale priced between $1,075,000 and $13,750,000.
42 new-construction homes sold in the North Shore during the past 12 months. Their list-to-sell price ratio was 93% and the average market time was 311 days.
However 2020 shakes out, 63 percent of buyers feel optimistic, according to NAR’s latest quarterly survey. What’s more, 52 percent believe the economy’s on firm footing.
ME - Buyers for North Shore homes are finding ample inventory here. Plus there are those low mortgage rates and down payments. Two good reasons to be optimistic. But higher property taxes is one major damper on sales.
So, will 2020 be a buyer’s market, or a seller’s market?
“I would consider 2020 to be a balanced market,” Beracha says. “Prices remain quite high and inventory is still a bit tight, so buyers can take advantage of lower interest rates and sellers can take advantage of the fact that inventory is still low.”
“We anticipate 2020 to continue to shift away from a seller’s market, especially if GDP slows and inventory ticks up,” McLaughlin says.
“At affordable prices, it will still be a seller’s market, and appreciation will be stronger at the lower price points,” Yun says. “The upper-end price projection—as people digest the deductibility of mortgage interest and state and local taxes, including property taxes—is less optimistic. On the lower end, demand will remain solid, given that we have low rates and job creation is continuing.”
ME: All three of these commenters refer to low inventory which has been an issue in most parts of the nation for several years. We have been the opposite of that with high inventory in all price ranges and long market times.
As far as the North Shore, I believe it’s too optimistic to say it could swing to a seller’s market. At best, some areas would begin (and have begun) to experience a more balanced market where both buyer and seller have equal advantage.
This could come about as inventory shrinks due to sellers delaying listing their homes for a year or so. Unless a major economic or worldwide event occurs, continuing low interest rates should still lure buyers into the deal.
2020 on the North Shore will look very similar to 2019. Spring will still be busy and homes priced aggressively to sell will be swapped up.