Will the housing market crash in 2020?
The Bay Area just said goodbye to a decade when real estate prices soared to astronomical heights. The 2010s were marked by $1 million fixer-uppers and bidding wars, and many homeowners saw their property values double. In 2019, prices flattened out a bit compared to 2018.
At the start of a new decade, what will 2020 bring? Is a crash on the horizon? What impact with the U.S. presidential election have?
We reached out to four experts to weigh in on the outlook for the Bay Area real estate market in 2020. We've compiled their responses to several questions below.
BOOM OR BUST: WHAT WILL HAPPEN TO THE HOUSING MARKET IN 2020?
Ken Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at UC Berkeley: "First of all, the rate of price increases flattened out for home prices in 2019 ... We expect that to continue in 2020. We have low-interest rates, but we also have the fact that housing is very expensive so it’s hard to become a bullish market. We expect the affordability problem to continue for the Bay Area. Job growth may slow and there's the possibility of a recession. A lot of people are going to decide now is a good time to sell because the market has gone up a lot in the past and prices are high."
Herman Chan, Sotheby's real estate agent working in the East Bay: "Bay Area real estate in 2020 will not face a crash. Unlike the great financial crisis where people bought with zero down payment, too many people have large down payments in their home or paid all cash in the past 10 years. They aren’t going to just walk away. Rents are still among the highest in nation and the appreciation ramped up steadily in the past 10 years, so many homeowners have options. They will wait it out, rent it out or cash out. However, for homebuyers the ramp-up has made the acquisition price a barrier to entry. The market will probably be flat overall. So it is not a crash, nor is it a boom."
Patrick Carlisle, chief market analyst at Compass Bay Area: "My guess is that the market will stay relatively even, neither increasing nor dropping by very much. Most of the Bay Area counties in 2019 saw median prices about the same as in 2018 (SF, San Mateo), dropped a little (Marin, Sonoma, Southern Alameda County, Santa Clara County), or bumped up a little (the Oakland-Berkeley, Inner East Bay region). That will probably occur in 2020, as well.
"I don't see a crash as likely, unless caused by some big, sudden, macro-economic, national or international event, which could be anything from war with Iran, to a Chinese stock market crash, or huge oil supply issues, run on the markets, or some new financially engineered, Wall-Street product that no one understands blows up. And the fact that personal, corporate, U.S. government and international debt are all at all-time highs and climbing is of significant concern. The only local event that could cause a big, negative adjustment would probably be an environmental/ecological event - such as an earthquake, massive fires with huge and continuing power outages."
Pierre Buljan, real estate agent on the Peninsula for more than 40 years and currently with Compass: "In my humble opinion, I don’t see any market crash in the near future. Two reasons, the market has already been leveling off over the past year, all over the greater Bay Area. Second reason, I don’t see much of a political climate change this coming year either. Prices are not expected to rise but rather stay neutral this year (if there is such a thing?). Lots of new construction is in process, which will help stabilize prices and give buyers an edge, so to speak. People will remain cautious as it is an election year and more on guard with fewer new construction projects started this year than in recent past."
WHAT FACTORS WILL IMPACT THE BAY AREA MARKET IN 2020?
Rosen: "Federal tax reform. Tax incentives are less desirable to homeowners. Federal tax reform limits state and local income tax deduction to $10,000, so raises the effective tax rate and after-tax costs of housing substantially in California and other high tax states. The doubling of the standard deduction and reduction in mortgage interest deductibility also reduces the incentives for homeownership. The after-tax cost of owning a home has gone up."
Chan: "Iran. Election. China. There was a reckoning with the IPOs buzz that fizzled. Frenzy is gone. There is a normalization in the market, which overall I find healthy. And of course lack of housing/affordability is always a factor."
Carlisle: "Outward migration of residents and businesses, foreign immigration, employment, interest rates, stock markets, venture capital."
Buljan: "The election. If any major changes are to happen, it will be after the elections. [But] the more likely factor that could gravely affect the real estate market is the recent California political talks about repealing Prop 13 and effectively raising the property tax prices three-fold! That could spell a destabilizing in the real estate market not seen in years and could prove to be a disaster for home owners and their ability to hang on to properties that they have owned forever."
WILL INTEREST RATES GO UP IN 2020?
Rosen: "I think they’re going to go up by about 50 basis points. That’s the long-term interest rate. Short-term rates will remain about the same."
Chan: "When the market was more frothy one to two years ago, the Fed had planned a couple rate hikes, but they reneged as the stock market and trade wars caused uncertainty. Heading into election year, I highly doubt the rates will jump....at least until new president is elected."
Carlisle: "Interest rates are famously difficult to predict. Just 13 months ago, the big predictions by economists and financial experts for 2019 were interest rates in the 5% to 5.5% range. Instead, they dropped to 3.5% to 3.75% - an enormous swing between forecasts and reality. I expect interest rates will probably stay low in 2020, but that's simply a guess."
Buljan: "I don’t see any interest rate hikes in the near future as the Feds don’t want any major shake up during an election year."
WILL 2020 BE A GOOD YEAR TO BUY OR SELL A HOME IN THE BAY AREA?
Rosen: "It’s a balanced market now. If you want to sell, now’s the time to do it. If you want to buy, it’s the best opportunity in some time. It might even shift into a buyer's market though that’s hard to believe in the Bay Area."
Chan: "We are in an inflection period now. It is hard to say clearly across the board. It is about market segmentation now. If you are buying with expectation of high appreciation in a couple years, it’s probably not a good idea. If you are buying long-term, then sure, lay down roots, take advantage of the super low rates. If you want to sell a house you just bought recently, it’s probably not going to turn out profitable after factoring carrying costs, closing costs, realtor fees, taxes, etc. If you have lived a long while and equity is hefty, then sure, sell now to cash out.
Sellers need to manage their expectations. They won’t be getting a dozen offers in one week. Maybe one to two, and longer days on market. Can’t rely on a hot market to unload. Don’t skimp on advertising and with the political uncertainties this year, some people may retract from the market and buyers who are actively searching can take advantage of less competition."
Buljan: "2020 will be both a good year to buy and sell. Prices have stabilized this past year, making it a better time to buy than in recent past years, but they are also at an all-time high, which in essence makes it a good time to sell."
WHERE CAN HOME BUYERS FIND DEALS IN THE BAY AREA IN 2020?
Rosen: "I’d say I don’t want to pick cities. If you're going to buy a home, get it as close to your job as you can because one of the other big problems beyond high housing prices is congestion has gotten bad in the area. Buy close to public transit or as close to work as you can because that big commute has become a problem for everyone in the Bay Area."
Chan: "Single family homes in metro areas are still coveted. I wouldn’t say those are the best deals, but those will hold value the best. New Luxury Condos are overbuilt and many do not feel those are strong investments anymore due to oversupply and lack of product differentiation. If you are looking for a good deal, many condo developers are more willing to wheel and deal to make a sale."
Buljan: "I think that people can and will find deals in pockets of the Bay Area real estate, properties that were priced aggressively within the last year and not sold will be back again at more reasonable prices and they will be deals to be had."
By Amy Graff