Despite home prices increasing 4.8% year over year in May, a report by CoreLogic predicts home prices will stall over the summer and estimates a 6.6% decline by May of 2021.
The CoreLogic Home Price Index Forecast predicts a month-over-month price decrease of 0.1% in June, with all states expected to experience decline. The report said strong home purchase demand in 2020’s first quarter, coupled with tightening supply, helped to prop up home prices through the pandemic.
“Unlike the Great Recession, the current economic downturn is not driven by the housing market,” CoreLogic said in its report. “While activity up until now suggests the housing market will eventually bounce back, the forecasted decline in home prices will largely be due to elevated unemployment rates.”
According to the CoreLogic Market Condition Indicators, an analysis of housing values in the country’s 100 largest metropolitan areas based on housing stock, 39% of metropolitan areas had an overvalued housing market in May 2020, including the Denver and Miami metros.
Undervalued markets accounted for 24% including the San Francisco area of California, and 37% were at value like the Chicago area of Illinois.
In overvalued markets like Las Vegas, home prices are expected to decline 20.1% by May 2021. Meanwhile, in San Diego — where the market conditions are considered normal — home prices are forecasted to decline just 1.3% over the next 12 months, the report said.
“By the end of summer, buying will slacken and we expect home prices will show declines in metro areas that have been especially hard hit by the recession,” said Frank Nothaft, chief economist at CoreLogic.
The anticipated impacts of the recession are beginning to appear across the housing market as the CoreLogic Market Risk Indicator, a monthly update of the overall health of housing markets across the country, predicted 125 metro areas have at least a 75% probability of decline by May 2021.
CoreLogic’s MRI also predicts an above 60% probability of a decline in home prices over the next 12 months in Prescott, Arizona, Daphne-Fairhope-Foley, Alabama and Naples and Crestview-Fort Walton Beach, Florida.
“States like Arizona and Florida faced the perfect storm of elevated COVID-19 cases and the subsequent collapse of the spring and summer tourism market, which curtailed home-purchase demand enough to keep a lid on home price gains over the coming year,” CoreLogic said.
CoreLogics HPI Forecast for the month of April also cited an expected decline in home prices for 2021 – the first time we’ve seen home prices fall in more than nine years.
“The next 12 to 18 months are going to be very tough times for the broader economy. As employment and economic activity begin to pick up, as it will surely do, we expect housing to be a driver in a national recovery,” said Frank Martell, president and CEO of CoreLogic.