As we get ready for another month in 2020, let’s look some more about how our housing market is predicted to do this year. Below is an article from realtor.com (which you can read further by clicking here) going over the housing forecast of 2020 from an economic standpoint.
Gross Domestic Product
Economic activity in the United States started 2019 on an upbeat note, fueled by consumer optimism and business confidence. Riding the corporate tax restructuring of the 2017 Tax Cuts and Jobs Act, companies boosted investments and, coupled with solid consumer spending, led to a 4.1 percent annualized gain in gross domestic product (GDP) during the first quarter of the year, according to the Bureau of Economic Analysis. In addition, exports outpaced imports during the period, leading to expectations of increased trade windfalls.
However, as the year wore on, the trade rifts between the US and its trading partners deepened, leading to an escalation in tariffs and overall uncertainty. While consumer optimism remained unabated—leading to a 4.6 percent annualized gain in consumer spending—business confidence waned and resulted in a 1.0 percent drop in investment in the second quarter. Even as government spending picked up the pace, the cumulative effect was a mild 2.0 percent GDP gain in the second quarter.
The loss of momentum was reflected in the third quarter’s GDP figure, which advanced at an initial estimate of 1.9 percent annual rate. The Bureau of Economic Analysis subsequently revised third quarter GDP to 2.1 percent, showing stronger business investment. The Federal Reserve, concerned about a deteriorating global economic outlook, decided to boost liquidity in the financial system, in an effort to prevent an economic slide.
The Federal Reserve moved into 2019 signaling through its forward guidance that, as the economy continued on an expansionary track, it would maintain a policy focused on monetary tightening. Markets expected at least two additional short-term interest rate increases at the outset of the year.
Towards the midpoint of the year, however, the central bank’s policy shifted, in response to global changes. While the US economy continued showing signs of growth, major economies around the world slowed. In response to the slowdown, central banks around the world engaged in accommodative monetary responses, resorting to cutting rates and purchasing assets, in an effort to boost output. Along with the Bank of Japan, several central banks in Europe took interest rates into negative territory, attempting to spur investment and liquidity. In response, world currencies dropped against the US dollar, adding pressure on US exporters and sectors sensitive to currency risks.
The Federal Reserve decided to change tack in light of these shifts, and responded by cutting rates 3 times, at the Federal Open Market Committee’s meetings in July, September, and October. The central bank also expressed that it would move from a longer term outlook to a shorter term horizon, assessing incoming economic data through the year to guide its policy actions. While the bank’s two main objectives—stable employment and low inflation—remained on track in 2019, the rate cuts seemed aimed at walking a tightrope between maintaining US economic momentum amid a global economic moderation and placating investors’ expectations for growth.
Mirroring the shift in business confidence, the pace of employment growth moderated in the first three quarters of 2019. While companies continued adding positions to their payrolls, the number of net new jobs totaled 1.45 million during the January to September timeframe, 27 percent lower than the same period in 2018, based on data from the Bureau of Labor Statistics.
The professional and business services sector—the main driver of employment growth during the past decade—took a back seat to the healthcare and social assistance sector, accounting for 311,000 net new jobs, a 29 percent decline from 2018. With over 410,000 new jobs added to payrolls, the healthcare sector led the pack, posting a 19 percent gain compared with the same period in 2018. Stemming from solid growth in business travel, the lodging and food services sector provided the third largest number of net new jobs in the first nine months of 2019, with 136,000 employees added to payrolls.
As the corporate outlook dimmed partway through the year, employment in manufacturing, trade, transportation and utilities slowed. In addition, despite strong demand for housing, construction companies hired 58 percent fewer employees in 2019 compared with the prior year. The slowdown in hiring was also evident in other sectors, such as mining and logging, financial activities, as well as arts, entertainment and recreation.
Government entities also reflected shifting priorities in 2019. After an extended period of flat hiring, the federal government added 45,000 new positions during the first nine months of the year. Local governments—enjoying rising property tax revenues—also went on a hiring spree, adding 91,000 new employees to payrolls, a 44 percent increase year-over-year. State governments pared back their hiring, adding a more moderate 20,000 new jobs.
The pace of employment, while slower than a year ago, pushed the unemployment rate to 3.6 percent in the third quarter of 2019, the same rate last experienced in the second half of 1969. The labor force participation rate reached 62.8 percent in the third quarter of the year, slightly below the average rate recorded over the past decade. While wages gained ground during 2019, at 3.0 percent during the first half of the year, when adjusted for inflation, they managed a more modest 1.2 percent year-over-year average gain.
Consumer confidence spent the better part of 2019 moving sideways, despite monthly fluctuations. In September, the Present Situation component of the Conference Board Consumer Confidence Index was unchanged compared with the same month in 2018. However, the Expectations component dropped 15 percent over the figure from the prior year, leading to an 8 percent decline in the overall index, and implying that consumers were expecting deteriorating conditions over the next few months.
2020 Economic Outlook
As economic momentum moderated through 2019 and global headwinds gather, GDP growth is projected to post a modest 1.7 percent advance in 2020. As the housing share of expenses continues rising, consumers—the largest contributor to output—will likely trim back on non-housing spending. A slowdown in consumer spending, coupled with rising global uncertainty and market volatility, can be expected to lead companies to contain costs and trim employment goals. An employment slowdown will move the unemployment rate from 3.6 percent at the start of 2020 to 3.9 percent by the end of the year—a jobless rate still below what would be expected in a healthy economy, but a shift in the wrong direction. In turn, consumer confidence will soften during the year, with the Conference Board’s Consumer Confidence Index estimated to decline 21 percent.
Following the Federal Reserve’s monetary accommodation, inflation expectations remain modest and well-anchored, translating into a 2.0 percent year-over-year increase in 2020. While short term rates remain low, economic moderation is likely to impact bond markets, leading to mortgage rates moving mostly sideways in 2020. Rates for 30-year fixed mortgages are projected to average 3.85 percent during the next year.