1. Rent control will spread more widely, eating into investor interest in higher-cost markets
2019 was a big one for rent control. It all started with Oregon's statewide rent control bill, which passed in February, capping rent hikes at 7% annually. New York and California followed suit later in the year with similar bills (7.5% in NY and 5% in Cali).

The reform caused multifamily investments to dip in many of these states' major markets. In New York City, for example, multifamily investing has fallen 9.2% over the year, while Los Angeles saw a 9.8% drop.

Rent control would freeze investment nationwide and eliminate property owners' ability to recoup costs and reinvest in maintenance and upgrades.

2. Mortgage rates will fall to record lows
The average interest rate for a 30-year fixed-rate mortgage is 3.99% as of December 10, and the all-time low (reached in 2012) is approximately 3.3%. Plus, the latest projections from the Federal Reserve show no further cuts in the federal funds rate in 2020, and the U.S. economy is generally strong by most metrics -- unemployment, wage growth, and GDP growth are looking good.

However, it is felt that the economy will be weaker in 2020 than most experts predict. Although we keep hearing about progress toward a trade deal, the reality is that the trade war is dragging on much longer than anticipated. In addition, global economic growth is projected to reach its lowest level since the Great Recession of Dec 2007 – June 2009.

So, there's a good chance the Fed will end up cutting interest rates at least a couple of times in 2020. Plus, the weaker economy will cause consumer interest rates to generally drift lower as well. It is quite likely we will see mortgage rates fall to a new all-time low in 2020.

3. Homebuilders will keep focusing on starter homes
Coming out of the Great Recession, homebuilders didn't spend much time -- or capital -- building starter homes. And for good reason. Young people were buying homes at record-low levels, and the only money to be made was building custom homes aimed at well-to-do buyers in the upper and upper-middle classes.

Fast-forward to now, and young people want to buy homes but there's just not enough of starter homes inventory to meet so many years of pent-up demand. That's been a boom for homebuilders specializing in entry-level properties like LGI Homes and Meritage Homes. So far in 2019, LGI Homes has sold 18% more homes than in 2018, while Meritage's closings are up 7% and orders are up 17% through the third quarter of 2019.

We see little reason to expect that to change in 2020. The economy will continue to perform reasonably well, unemployment has stayed near record lows as companies continue to need highly skilled and highly educated workers. The Millennials meet these qualifications of highly skilled, educated workers.  They also now getting married, starting families, and looking to take part in the American dream of homeownership.

With interest rates near record lows, and a solid economy, we expect LGI and Meritage, along with most of the other large builders, to continue investing much of their capital into starter home communities in 2020.

4. The private sector will bring new solutions to the affordable housing crisis 
The current affordable housing crisis is not breaking news. The need for low-cost housing is at an all-time high -- and not just for the lowest income earners but for median income, blue-collar wage earners, too. According to the National Low-Income Housing Coalition (NLIHC), the United States needs more than 7 million affordable homes to meet the current housing demand.

Traditionally this problem was left for government entities and not-for-profit companies to solve, but with new local and federal tax incentives and looming rent control laws spreading to more high-rent metro areas, the private sector is finding a way to become part of the solution without compromising profits.

According to the Economic Innovation Group, as of October 2, 2019, 115 listed funds have identified affordable and workforce housing, as well as community revitalization, among their investment priorities—a nearly four-fold increase since the beginning of 2019. Most of these developments are focused on providing affordable housing for wage earners who make around 40% to 70% of the area median income.

As construction and development for investment projects in Opportunity Zones begin, we expect more private firms to follow suit. We are already seeing a growing number of private companies outside of OZ investment areas focus their efforts on constructing new housing projects, converting existing housing into affordable housing, or creative new adaptive reuse projects, where they convert old, vacant buildings like factories, schools, and office space into residential housing.

As long as incentives for investors like the low-income housing tax credit (LIHTC) are around in 2020, private investment participation in affordable housing will likely increase.

What are your predictions for the real estate market in 2020? Do share them with us.