Economists pay close attention to the real estate market as a significant indicator of economic news. While real estate growth in late 2019 has slowed down some, it is still a healthy market that is prospering – we see new apartment construction happening from coast to coast. When navigating the real estate market, specific trends are worth following for 2020.

Here are 9 of our top real estate predictions for 2020: 

1. Millennials represent a large potential pool of first-time homebuyers ready to enter the 2020 market.

Seventy-four million millennials constitute a vast demographic of consumers ripe for buying their first home, surpassing the impressive number of baby boomers who exploded onto the home buying scene in the 1970s and 1980s. Forbes reports that the average household income of this group of likely homebuyers is $88,200. Acknowledging that the typical group of homebuyers from this generation is now of age and earning a decent salary, many economists believe that Millennials offer redemption for a slowing home market in 2020.  

2. Conventional loan requirements have become less stringent, making it easier to buy a home today than in recent years following the Great Recession of 2008.

Underwriting guidelines have relaxed a lot, effectively making it easier to buy a home today. The way conventional lenders have supported home buying is by reducing the down payment required along with the credit scores to qualify. Lenders are now also allotting for higher debt levels. Many borrowers who were rejected in the past can now obtain a mortgage through conventional lenders. Given the increase of rental prices, first-time homebuyers distinctly benefit from lower down payment requirements and more tolerant debt ratios. 

Loosened terms may take some people out of the rental market in the short-term, but there will still be considerable demand from renters who are not eager or able to buy, even with the less rigorous banking underwriting conditions. On a contemplative level, these cycles may contribute to a gentle slow down in apartment demand.

3. Interest from international investors may shift from home buying to renting due to tax law changes.

Since the new tax laws came into effect in 2018, many foreign buyers have stopped acquiring homes in luxury marketplaces such as New York and California. A majority of these buyers were from Europe, China, and Latin America. Those who would otherwise have been buyers may be willing to pay up for luxury apartments, especially if they have children attending universities in the U.S.

4. Mortgage rates are expected to remain lower than five percent for the near future.  

Low and steady mortgage rates excite the real estate industry. While it is difficult to know for sure how long this bearing will continue, there is little indication that the rates will spike, especially since we’re nearing a general election in 2020.

HBI reports that both the Mortgage Bankers Association and Freddie Mac economists expect the 30-year mortgage to average between 3.8 and 4.5 percent for the balance of 2019 and into 2020. This is good news for the real estate industry that is notably sensitive to mortgage rates. Debt is cheap.

Low-interest rates may also boost ongoing new construction, as housing development is particularly susceptible to interest rate fluctuations.  

5. Second-tier cities are undergoing significant growth as homebuyers search for more affordable buying options.

Forbes reports that the trend of looking to secondary possibilities rather than spending handsomely in well-known housing markets is anticipated to continue through 2020. Many larger corporations have driven this trend by relocating corporate offices to affordable locales. An example of this type of recent move is Toyota migrating out of California to establish a Dallas office. This could make these markets more attractive for new multifamily housing development. 

6. The competitive housing landscape has fueled amenity-rich apartments as a way to beat the competition.

Today’s beautiful and charming multifamily developments boast movie theaters, communal gardens, laundry service, valet trash, and even coworking space in many cases. We expect this trend to continue throughout 2020.

7. Staging will continue to be big business – for homes and apartments alike.

Decluttering is key for achieving the best price for your home when it is time to sell. There is proof that sellers get considerably more if they stage their home. Luxury apartments are even getting in on this trend, staging a model unit with high-end furniture and other novel touches that will draw high-paying renters.

8. Video marketing is here to stay.

Buyers, whether looking for a new home or a new apartment, will increasingly expect to see videos of properties before going to tour them in person. Thus, video marketing and virtual tours will become more critical in 2020.

9. Suburban Multifamily will continue to outperform in 2020

According to CBRE’s Head of Multifamily Research, Janet Rice, “the top four markets for multifamily performance in 2020 are Austin, Atlanta, Phoenix, and Boston. The first three are very high-growth metros by population, households, employment, and multifamily demand. Construction is very active in these markets.”

“Investors and developers should also consider smaller metros (e.g., less than 2 million population). While liquidity and overbuilding risks are generally higher in smaller markets, there are several metros with exceptional multifamily performance today, resulting from favorable supply/demand fundamentals (steady growth over recent years and only moderate development activity). Many smaller metros are undergoing a significant upgrading of their urban cores, thereby improving quality of life and helping them retain talent.”

The multifamily market has had steady growth over the last ten years, and it is assumed that the next decade will begin with a strong year. Despite an expected light “cooling” in demand in 2020, the market is predicted to be strong enough to endure and remain stable. As we head into the new year, the commercial real estate industry should be ready for yet another prosperous year for the multifamily sector.