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November 26, 2019

Could Boomers halt dwindling U.S. home inventory in 2020 and beyond?

Real Estate Housing

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The U.S. housing market in 2019 has largely been driven by two trends: low mortgage rates encouraging new buyers and limited inventory increasing competition, and thus prices.

As the year comes to an end, real estate experts are beginning to forecast how the market will take shape in 2020.

A new analysis from Redfin sees several current trends continuing, while their full effects may finally be felt in markets across the country.

“Low mortgage rates started to revitalize the market at the end of this summer, but we won’t see their full impact on demand for housing until next year,” said Daryl Fairweather, Redfin’s chief economist. “In 2020, buyers will have fewer homes to choose from than they have in five years. But the return of bidding wars is good news for sellers who may have been holding out this year as the market stabilized.”

Redfin expects bidding wars will be present in one out of four offers in 2020 compared to about one in 10 in 2019. Annual price growth could rise as much as 6% in the first half of next year.

Ultimately, the growth in home prices could help bring supply and demand into balance, according to the report. As prices increase, the market will have more sellers looking to take advantage.

Still, the overall problem of low inventory continues to be a trend that will shape the housing market in the years to come.

One possible source of new inventory? Boomers, according to another report from Zillow.

Four out of 10 U.S. homes are owned by residents age 60 or older. Five out of 10 are owned by residents 55 or older. As this demographic passes on over the next two decades, more than 20 million homes will return to the market. Zillow predicts there will be “Silver Tsunami:"

"The release of older residents’ homes into the market adds net supply to the market, similar to new construction (most existing home sales involve a seller who is almost simultaneously also a buyer, contributing to both the supply and demand for housing). That is important because new construction has failed to return to its historical production levels in the years following the Great Recession, and home builders face challenges that are likely to endure for a long period." --Issi Romen, Senior Director of Housing & Urban Economics at Zillow

The catch will be that this influx of homes will be concentrated in areas that have been popular retirement destinations, such as Florida and Arizona.

While homes owned by Boomers will provide inventory relief in some parts of the country, fast-growing areas that have been pursued for their relative affordability will likely see tightening supply and higher prices.