Realtor.com has revised its 2020 Housing Market Forecast to take the impacts of COVID-19 into account, and the real estate website now foresees a rebound that may not be as upwardly linear as many hope.
The new report, written by Realtor.com chief economist Danielle Hale, anticipates home sales to bounce back as concern about the virus dips. However, Hale cautioned that a later drop in sales may be in the cards, partly stemming from a future rise of infections as the coronavirus curve enters a potential second wave. That, coupled with lingering unemployment, will lead to what Hale calls “a see-saw recovery with ups and downs.”
“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,” Hale said. “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.”
Throughout the year, however, Hale said that buyers will likely see fewer homes listed and experience “periods of low-churn” with limited inventory entering the market like we’ve seen so far in the spring, especially during local coronavirus flare-ups. Secondary waves of COVID-19 infections will keep demand on a roller coaster, she added, with sales expected to slow again during these periods as sellers pull properties and demand recedes.
Marrying those projections with first- and second-quarter observations, Realtor.com forecast existing home sales to fall 15% for the year as a whole. The second quarter, normally the active spring buying season, is expected to suffer the most, pulling back 25% from the same period last year.
Housing starts are expected to decrease as well, down 11% per Realtor.com’s forecast. Due to this decline and to sellers de-listing properties, inventory will remain scarce. That’s normally a recipe for surging prices, but with buyer demand likely volatile as well, Hale anticipates that prices will remain “relatively stable.” She also expects the rate of inventory decline to steady, with the supply of for-sale homes shifting toward more availability of lower-priced properties.
Because of these factors, Realtor.com predicted just a 1.1% increase in home prices for the calendar year, with Hale noting that the market may even see “small declines” by the end of 2020.
Mortgage rates are expected to average 3.2% throughout the year, ending the year around 2.9%. While rates will remain advantageous for buyers, qualifying standards will also stay tougher than the recent norm, given lenders’ risk aversion during a time of high 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,” Hale said. “Shopping around for the best rates and terms will be particularly important.”
Sellers will have their own challenges to navigate as they, too, look to buy their next homes while listing their current ones. With sales slowing and properties spending more time on the market, Realtor.com said that timing a home sale and subsequent purchase will be more difficult. While it may be easier on a seller to accept an offer with a home sale contingency, it may be harder to complete such a transaction in the current environment, Hale said.
