Despite the spread of COVID-19, homebuyer demand remains strong, and U.S. home prices aren’t expected to drop more than 2-3% through the end of the year, according to a forecast released by Zillow on Monday.
According to Zillow, the third quarter this year will show a 0.13% decline year over year, followed by a 1.18% decline in Q4 and 1.66% decline in Q1 2021. Once Q2 2021 rolls around, there will be an estimated 0.21% increase.
The forecast continues to predict that the number of homes sold will fall as much as 60% this spring.
The cause? The overall economic uncertainty due to the pandemic, and adjusting to shelter-in-place and stay-at-home orders that are disrupting the economy. However, compared to the previous recession, which caused millions to lose their homes after the housing crash, the current housing fallout seems to offer some silver linings.
“Much uncertainty still exists, particularly with some states beginning to reopen and experts warning of a possible second wave of the coronavirus in the fall,” said Dr. Svenja Gudell, Zillow’s chief economist. “However, housing fundamentals are strong – much more so than they were leading into the Great Recession – and that bodes well for housing in general.”
“Despite the difficulties, we’re seeing several signs that there is still a good amount of demand for housing, and buyers, sellers and agents are growing more comfortable moving transactions forward where possible,” Gudell continued. “For those who need to sell, buyers are out there, and there are ways to embrace technology and practice social distancing to ensure a safe process.”
Up until March – and as predicted in late winter – this spring was set to be the best home-shopping season in years, as record-low inventory and interest rates fed high buyer demand, specifically from Millennials.
According to the National Association of Realtors, median home prices went up 8% year over year, to $280,600 in March. Home sales fell 8.5% and more people are staying put, keeping the record-low inventory low.
In an interview with HousingWire, Skylar Olsen, senior principal economist at Zillow, said that home prices are expected to drop anywhere from 2% to 3% through to the end of 2020.
“We’re pretty confident we’re actually hitting that bottom right now that we’re experiencing,” Olsen said. “We can’t confirm that quite yet because wholesales are reported at a lag. But, when we look at our pending sales numbers, it seems to align right, so pending in terms of active listings switching to in contract.”
Although this year’s drop may be big, it’s much smaller than the nearly 25% drop and five-year recovery from the housing-led Great Recession.
Originally, the Zillow Home Price Expectations Survey in January expected home prices to rise 3.3% in 2020 on average and another 2.7% in 2021.
“With that [global financial crisis, the housing bubble and housing bust] as an example, the 30% fall on home values over the course of 2008 to 2012 is really an extreme event,” Olsen said. “And even though this is an extreme event, absolutely, it will not impact housing prices in the same way.”
Meanwhile, only about 4% of sellers cut their prices in the week ended April 25, down from 5.7% during the same week last year, according to Realtor.com.