2020 Housing Market Predictions – COVID-19 Update

>> NEW: 2021 FORECAST <<

National Housing Forecast 2020: Ups and downs as housing markets find their footing in response to COVID-19

• Home price growth will flatten, with a forecasted increase of 1.1 percent
• Inventory will remain low, but the rate of decline steadies and the mix of homes for sale shifts toward greater availability of lower-priced homes
• Mortgage rates remain low and may slide under 3 percent by the end of the year
• Home sales are constrained by low inventory and diminished seller and buyer confidence as the effects of COVID linger in the labor market
• Buyers seeking affordability and space drive interest in the suburbs 

Realtor.com Forecast for Key Housing Indicators

Economic Perspectives

Gross Domestic Product and Global Impact

For the purposes of measurement, economic activity is divided into private spending and investment, government spending, and net exports. As the coronavirus spread, companies and individuals curtailed travel airlines, cruise ships, hotels, and tourism destinations saw revenue evaporate. Later, as individuals were encouraged or in many cases ordered to shelter at home, a variety of outlets from restaurants and other service industries to consumer goods saw sales decline. Spending on big ticket items such as cars and furniture was particularly dramatically reduced. The economic impacts of these events are far-reaching. Lower consumer demand means inventories build up and there is less need for ongoing production, so manufacturing slows. Reduced travel and manufacturing means less demand for fuel. While government spending has increased as policy makers attempt to offset some of the drop in consumer activity, it has been smaller than what was lost, so economic activity declines. 

Stemming from the global trade connections, the pandemic’s impact on trade was swift and strong. With shipments from China and other trading partners stuck in ports, U.S. imports—a negative contributor to GDP—declined by double-digits, while exports declined by a smaller amount, leading to an increase in the trade deficit.

The economic decline in activity took on a global scale, as results for the first quarter have been illustrating. China’s economy declined for the first time in decades during the first quarter of 2020. Neighboring Asian economies also felt the pain of both the viral pandemic and economic decline, with several countries showing GDP declines during the first quarter. For many other countries, the first quarter’s impact is yet to be shown in official figures.

As the virus traveled westward, economic slowdown followed. Europe, where the virus hit Italy, Spain, the United Kingdom, and Germany particularly hard, experienced the effects of severe lockdowns in quick course. For the Euro area, the first quarter’s economic output dropped by 3.3 percent compared with a year ago. Large slides in economic activity of member countries, like France, Italy, Spain, and Belgium drove this decline.

For other regions of the world, the health and economic impacts are still roiling countries, and existing data are yet to reveal the extent of the damage. However, preliminary reports indicate that the pandemic has touched every major region, hobbling economic activity, and adding pressure on government budgets.

Fiscal and Monetary Policy

As the economic dangers of the virus began to emerge, the Federal Reserve was extraordinarily proactive, adjusting the federal funds rate lower on March 3 and again on March 15, in the latter adjustment bringing the rate all the way to zero.  In conjunction with rate cuts and in the weeks that followed, the Fed rolled out a series of lending facilities to provide liquidity to reeling markets, employing lessons-learned from the financial crisis with much greater haste.  

Fiscal policy makers also reacted quickly, targeting some funds to public health initiatives and others to shore up small businesses and households via lending programs and direct payments.

Employment and Income

The labor market effects of COVID-19 and public health measures to cope with it have been unprecedented. As of this writing more than 33 million jobs have been lost as measured by initial claims for unemployment insurance in the past 7 weeks.  For comparison, in the worst period of job losses in the 2008 recession, it took 58 weeks–more than a year–for the economy to shed a similar number of jobs. This has pushed up the unemployment rate to a record 14.7 percent and thinned many Americans’ wallets as income from lost jobs is generally not fully replaced by unemployment benefits. The additional federal unemployment benefits available now are in some cases enough to completely replace and in some cases even exceed previous income, but these benefits are temporary. 

Consumer Confidence

Consumer confidence is tied strongly to stock market performance and the jobs market. As a result, measures of confidence and sentiment have taken big hits as the economy shuttered. On the bright side, consumer expectations for the future have not dropped as much as their assessment of current conditions, suggesting that many expect the economy to be able to bounce back from virus-induced shutdowns. Housing market sentiment shows a big hit to seller confidence with buyer sentiment down by a smaller amount. 

2020 Housing Trends

State of Housing – Before and After COVID-19

Housing started 2020 with substantial momentum as evidenced by hitting some of the best home sales and housing starts pace in more than a decade in the December 2019 to February 2020 period. The inventory of homes for sale hit new lows and was likely to continue to present one of the biggest obstacles to additional home sales pre-COVID. With record high prices, affordability was a driving concern that led many to look to affordable suburbs or secondary markets.

COVID-19 has affected both buyer and seller willingness to transact sales in the time that the virus is actively circulating in many communities due to social distancing concerns and hesitation among many to complete a 100% virtual transaction. Additional economic uncertainty has compounded this temporary reticence. 

We expect home sales to rebound as virus-concerns wane, but a later dip in sales as a result of a combination of a future rise in infections and lingering unemployment will lead to a see-saw recovery with ups and downs.

Home prices are projected to flatten, increasing just 1.1 percent for the calendar year and possibly registering small declines by the end of 2020. With many sellers remaining on the sideline and a decline in housing starts, inventory will remain constricted. Under normal market conditions, prices would be expected to skyrocket as inventory evaporates, but buyer demand is expected to see-saw throughout the year as secondary waves of coronavirus infections pop up throughout the U.S. During these periods, sales are forecast to take a hit as sellers de-list properties and buyer demand abates.

Home Buyers

Buyers will likely see fewer homes available for sale and periods of low-churn or few fresh listings like we’ve seen this spring, especially during local COVID flare-ups. The limited number of homes for sale will keep home prices relatively stable and this may give buyers using a mortgage (especially Millennials) some relief against investors and other cash-heavy buyers who are expected to play a smaller role.  

While mortgage rates will be favorable, qualifying criteria will be tougher than recent years as lenders seek to mitigate their own risks against economic uncertainty. This will mean buyers need more cash for a downpayment and higher credit scores in order to get a loan with many lenders. Shopping around for the best rates and terms will be particularly important. 

After extensive time spent at home, home buyer preferences for space and quiet have gained renewed attention. These preferences plus a renewed focus on preparing for the unexpected are likely to keep affordable suburbs and secondary markets top of mind for many buyers. Already, we’ve seen a trend of more large metro shoppers looking for housing outside of their current metro which is likely to continue.

Home Sellers

Sellers, many of whom will also be buyers, will grapple with the buyer conditions as well as their own set of challenges.  With a slower pace of sales and longer time on market, it will be more difficult to time a home sale and subsequent purchase, so while it may be easier to have an offer with a home sale contingency accepted, it may be harder to complete this type of transaction. 

Early in the crisis, sellers showed a willingness and ability to respond to the evolving situation by deciding not to list in the spring, a typically busy time for housing. Many sellers are expected to come back to the market in late-summer when COVID infections are expected to abate enough to permit a resumption in many types of activities, giving buyers options and boosting sales in these months. 

Election Implications?

Historically, a strong economy favors an incumbent president. Will voters judge the President against a pre-COVID baseline or COVID-adjusted baseline? We expect the economy is likely to be better than the COVID ‘worst case’ but not fully recovered before the vote.  

In our early-March survey of spring buyers, which was in the field as concerns mounted but before COVID shelter-in-place orders became widespread, the share of respondents indicating they were not planning to purchase a home within the next year on account of the 2020 election was actually higher than those indicating that COVID was the cause of their not purchasing within the next year. 

Subscribe to our mailing list to receive monthly updates and notifications on the latest data and research.