The U.S. housing market is off to a strong start in 2020 as a deepening shortage of homes for sale and surging homebuyer demand are set to push prices up at the fastest rate in years, according to a new report from Redfin. Buyers may be coming out of winter hibernation early, but so far sellers are few and far between, which is setting the stage for intense competition.
Redfin CEO Glenn Kelman has previously called the big game weekend “the weekend where the housing market either goes crazy or it takes a nap.” This year, homebuyers and sellers didn’t need to wait to see how the housing market is playing out. Homebuying demand spiked in January as many potential homebuyers are turning into active homebuyers well in advance of the typical spring peak homebuying season.
“With every new release of data this year, I’m becoming more and more confident that demand will be strong in 2020 — just as strong as, if not stronger than, in 2018 and 2017,” said Redfin chief economist Daryl Fairweather. “The big question for the housing market this year is supply. Will homeowners sit on the sidelines, content with their refinanced loans, or will they want to get in on the action too and move up, move down, or cash out entirely? New construction is beginning to pick up in some markets though, so even without new listings of existing homes, there will be some relief for homebuyers hoping for more selection. However, due to the high cost of acquiring and developing land in expensive coastal cities, much of that new construction will be built far away from urban centers or in already affordable metros.”
It’s typical to see a spike in early homebuying activity, but this year the jump is unusually large. On January 15, the Mortgage Bankers Association released data showing that their Purchase Index — a measure of how many homebuyers are applying for new mortgages—hit an 11-year high. In addition to public data, like the MBA Purchase Index, internal Redfin data are also showing big year-over-year gains.
Unless a lot of new housing inventory hits the market soon, the 10-year peak in homebuying demand, coupled with a 20-year low in the numbers of homes for sale, will lead the housing market straight into the mother of all inventory crunches. That could result in a sudden and rapid rise in bidding wars and spiking home prices.
