Here are a few highlights that jump out at us for 2020:
- 2020 is a presidential election year.
Elections always have a way of sparking hesitation and fear in the markets. The historical evidence is that the world will continue to turn like it always has.
- Interest rates – where are they going?
From 2013 to 2017 interest rates were rock-steady, moving between mid-3s to rarely hitting low-4s. In 2018 they spiked to just under 5% by November. The media ran with the story that rates were only going up and that homes were unaffordable. Fearful, builders laid off staff and sold land. The Fed then unexpectedly reversed course and rates dropped back to 3.5%. We believe rates will hover between 4% and 4.5%, though interest rates are unpredictable, despite anyone’s prognostication.
- The “Housing Crisis” and predicted return of bidding wars.
Nearly every building industry event in the last quarter of 2019 and many industry blogs and newsletter refer to the shortage of housing as a “crisis”. Demand outweighs supply at all price levels and especially at the entry level. Once again, a story is being woven that we are currently in and moving deeper into a seller’s market. We believe the opposite. Many builders are not hitting absorption goals with sales trending low on a monthly average. This could signal different market shifts that leave those buying into the story unprepared.
- This November saw the completion of the 10-year cycle for the Regional Housing Needs Assessment “RHNA”, voted by the Southern California Association of Governments, “SCAG”.
This will affect all of Southern California except San Diego, whose own governing body “SANDAG” will finalize its numbers by 2021. The Central Valley is only a couple years after that. The numbers set forth are enormous, with many questioning if and how this is going to play out. Eyes are open to see if any good will be made on the threats from Sacramento to penalize cities by withholding vital funding, should they not comply with the numbers. This may be an opportunity for builders to grow and expand their business helping to supply the market.