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As the home price rally continues, the market is beginning to be bifurcated into some areas where prices keep climbing unabated and others where home price gains have begun to plateau. The main factor that will influence prices in these markets is not climbing mortgage rates or a slowing economy. Instead, rising supplies or population shrinkage in several large metropolitan areas will slow the real estate market in these cities.
Realtor.com has released a survey of its price prediction for home sales and values in 100 major U.S. metropolitan areas. In roughly a quarter of these markets, sale prices are expected to fall in 2020. However, there are also some markets where the housing market rally will not only continue unchecked but will also pick up steam. Here are some examples of how the housing markets in certain cities will fare next year.
Home Prices in Chicago Will Fall in 2020
For example, the housing market in Chicago is predicted to cool off and fall in 2020 as a result of both oversupply as well as local financial issues. Chicago home prices had already been slowing down in 2019 with an increase just over one percent. The Chicago area is suffering economically due to the uncertainty of both the city and state's finances. The State of Illinois faces a large unfunded pension liability which may require that taxes be raised to cover it.
Chicago also has a burgeoning rental market that has depressed the ownership market. Rents in the city have increased steadily and the rising costs to rent have not yet spurred home buyers off of the sidelines. Millennials have been fleeing Chicago due to over congestion and rising rents. This has helped put a cap on home prices in the city as the area's population has remained stagnant.
The South Florida Real Estate Market Will Cool Down
Another area where home prices are expected to fall is in South Florida, albeit for different reasons. People are still pouring into South Florida at record rates which leads to continued demand for housing. However, there are two factors that will put the lid on housing prices in 2020. The first is that home builders have taken full advantage of the rising prices and are now coming onto the market with a large amount of supply. In fact, the South Florida housing market can now considered to be oversupplied. Second, home prices in Miami have risen so far so fast that many new buyers are simply prices out of the market.
These reasons also apply to many of the markets in the country where home values are set to fall in 2020. In these areas, supply is beginning to catch up to demand and, in some cases, will outstrip it. Also, there is now a limit to what people can afford in housing markets that have begun to overheat.
Some Western Cities Have Hot Real Estate Markets
On the flip side, there will still be double-digit home price increases in several markets in the U.S. in 2020. These are markets where the population has surged and continues to grow. Yet the housing supply has not yet caught up to the growing population base and, as a result, home prices continue to skyrocket. The cities that are experiencing growth mirror the population trends and patterns in the country. In other words, where people move, home prices increase.
Many of the turbocharged markets are located in mid-sized Western cities that have recently begun to see large population growth. For example, the market of Boise will see double-digit price increases next year. Boise has experienced rapid population growth in recent years. The metropolitan area has more than doubled in population since 1990, and Idaho is growing in general by leaps and bounds right now. At the same time, there is not to building infrastructure to keep up with the population growth so new supply cannot come onto the market fast enough even though there is plenty of space for new homes.
The same dynamic is at play in areas like Tucson which are also popular among young people and retirees looking to relocate. Tucson will also experience double digit price increases as the city is also experiencing dramatic population growth. The city's housing prices started from a relatively low point, so there is still room for home prices to rise before people get priced out of the market.
Continue to track population trends overall to see where the market will heat up or cool in 2020.
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