2020 Will See ‘Historic Low Level’ Of Housing Inventory

Demand for homes will be strong next year, but homebuyers will have few options. In fact, according to a new forecast for 2020, next year may just see the biggest housing inventory shortage in U.S. history.

According to the 2020 National Housing Forecast from Realtor.com, the national housing shortage will continue in the New Year, possibly reaching “a historic low level.”

As Realtor.com’s senior economist George Ratiu explains, “Real estate fundamentals remain entangled in a lattice of continuing demand, tight supply and disciplined financial underwriting. Accordingly, 2020 will prove to be the most challenging year for buyers, not because of what they can afford, but rather what they can find.”

Currently, only one out of every 10 markets is seeing inventory growth. That’s down from the start of 2019, when two out of every three markets was growing. 

An increasing number of Baby Boomers aging in place is part of what’s keeping inventory levels so low. Currently, 55.2% of all owner-occupied homes are owned by people age 50 or older.

Growing homeownership tenures, which now average at 13 years (23 in some cities), also play a role. Both trends will contribute to a predicted 1.8% drop in existing home sales by 2020.

Continued strong demand for housing—particularly options at the entry-level—is only exacerbating the issue. According to a recent analysis from credit bureau TransUnion, between 8.3 and 9.2 million first-time homebuyers are expected to hit the market in the next few years. 

Unfortunately, homes at these buyers’ price points are in short supply. A recent Zillow report shows for-sale homes in the lowest price tier are down 10% over the year. 

Though home construction has grown in recent months, (the Census reported upticks in both residential housing starts and building permits in October), Ratiu says it won’t be much help to this cohort.

“The construction of new homes in 2019 was largely isolated to upper-tier of housing and that is unlikely to ease conditions for first-time homebuyers,” he says. 

Fortunately, it’s not all bad news. Mortgage rates will likely remain low in 2020, with experts predicting rates below 4% across the year. Additionally, home prices will moderate. In some cities, they may even decline. (Realtor.com predicts a 4% decline in Kansas City and a 3.2% decline in Scranton, Penn.)

Still, buyers will have to find a home first. And as the forecasts show, that’s not getting any easier.

“The market is still years away from reaching an adequate supply of homes to meet today’s demand from buyers,” Ratiu says. “Despite improvements to new construction and short waves of sellers, next year will once again fail to bring a solution to the inventory shortage.”