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“There will be a lack of inventory at that entry level price point and home prices are still going to go up,” said Lisa Sturtevant, chief economist for the Virginia Association of Realtors.
She said those factors are not likely to change soon.
A good year for Millennials to buy
Heading into 2020, Sturtevant said that demographics point to this being a good year for Millennials, who are mostly now in their 30s, to buy.
But the small inventory of lower cost homes continues to bedevil buyers in many markets across the country.
Quest for affordability will push open midsize markets
While you may be able to buy a house next year, it may not be where you planned to live.
“For the Bay Area, people who are priced out are going to Solano County or Sacramento,” said Appleton-Young. “The people who are priced out of Sacramento and the Inland Empire, they are going out of state, to places like Arizona, Nevada and places that are more affordable. We’re looking at the tipping point.”
A few cities are affordable now and poised to be the cities where you wish you would have bought in 2020, come 2030. “Some cities are clearly positioned for exceptional longer term performance,” said Lawrence Yun, chief economist for the National Association of Realtors.
These cities are: Charleston, South Carolina; Charlotte, North Carolina; Colorado Springs, Colorado; Columbus, Ohio; Dallas-Fort Worth, Texas; Fort Collins, Colorado; Las Vegas; Ogden, Utah; Raleigh-Durham-Chapel Hill, North Carolina; Tampa-St. Petersburg, Florida.
Buy or continue to rent?
Even as home prices have gone up in many markets, the alternative, continuing to rent, isn’t cheap either.
“Ask yourself how long you expect to live in the home,” said Jay Abolofia a certified financial planner and founder of Lyon Financial Planning. “If it’s less than five years, consider renting instead, especially if prices are high and the market is volatile.”
Avoid thinking of a first home as an investment, he said. “No one can predict the market,” he said. “It’s best to consider home ownership as an expense rather than an investment.”
Don’t underestimate the long-term costs associated with homeownership either, he said. “Add an additional 2% of the dwelling’s replacement cost to your estimate of annual operating expenses to account for major maintenance.”
While interest rates are appealing, in 2020 it is important to understand that prices remain high in most major metro areas, he said. “This requires a larger down payment and higher annual property taxes, which are no longer deductible over $10,000.”
To get over the down-payment hurdle, some people consider putting down less than 20%, but Aboldofia says that is also risky.
“The greater the size of the mortgage, the larger the interest payments, even if home prices fall,” he said.
Still, renting remains a good option, even in some high-cost areas, says Abolofia. “Compare the home sales price to the annual rental expense for an equivalent property. If buying costs more than 15 to 20 times that of renting, you’re better off renting.”
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