Real Estate

Forecast: Housing Market To Chart W-Shaped Coronavirus Recovery

The rebound of the U.S. housing market will not look like a “V” or a “U.” Rather it would be a “W,” according to the updated 2020 forecast of real estate listings website, realtor.com.

According to the company’s economics team, national home sales will improve in July, August and September, largely driven by demand from millennial shoppers and transactions in secondary markets, before they decrease again due to a projected winter spike in coronavirus infections.

“As cities and states begin the slow process of reopening, we’re going to see a see-saw recovery with ups and downs that will favor the nation’s secondary markets in the short-term,” said realtor.com Chief Economist Danielle Hale.

After 2019 logged 5.3 million existing home sales, realtor.com initially expected 2020 to post 5.25 million sales, a decline of a little under 2%. Today, however, in light of the pandemic-induced havoc in real estate, it projects annual home sales to slide down some 15% to 4.5 million. Housing starts would also drop by 11%. 

Despite extremely tight inventory, an issue that has plagued the housing market for months, home prices would increase only modestly by 1.1% year-over-year, according to realtor.com’s updated forecast.

In any situation in which sellers retreat from the market – and, thus, staunch supply – prices would jump exponentially. Yet, because buyers are also hesitant to complete one of the most consequential purchases in their lifetimes amid widespread economic uncertainty, the forces of supply and demand are offsetting each other.  

“The coronavirus pandemic has kept both buyers and sellers on the sidelines, preserving market balance, for now,” said Hale.

If COVID-19 cases resurge later this year, inventory would likely dip further, creating a “what you see is what you get” environment potentially dominated by sight-unseen deals, says realtor.com. Such a scenario, though, would hardly benefit sellers, whose residences would spend more time on the market and attract less offers overall.  

Realtor.com further states that because house prices are to remain relatively stable, those still looking to purchase would not face the kind of competition that emerged during the 2008 recession, when all-cash investors swooped in to amass cheap properties.

2020 home buying headwinds

Nonetheless, home shoppers in 2020 have other types of headwinds to overcome. These include the stricter qualifying requirements that lenders have adopted due to the pandemic, including excellent credit scores and hefty down payments. These tougher mandates could depress house purchases even if mortgage rates are to remain at record low levels. (The 30-year fixed mortgage rate averaged a little under 3.6% in the first three months of 2020, a percentage point lower than a year ago.)

Realtor.com’s new forecast spells an interest rate below 3% by the end of 2020, mostly spurred by the Federal Reserve’s efforts to jumpstart the economy. “Shopping around for the best rates and terms will be particularly important over the next year,” the company says in a press release.  

A number of unknowns remain in the housing market, namely the effects of the country’s record high unemployment rate and the possibility of any further federal economic stimulus. Americans with battered finances would probably turn to resilient secondary markets, away from pandemic hot spots and in more affordable homes.

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