Since the coronavirus pandemic caused a decline in the stock market, one of the most common questions people have asked is: Will home prices fall in 2020 as well? In troubling times like this, sellers, buyers, and real estate investors need the answer to help them make wise decisions. In this blog post, we’re going to answer this question and provide you with our US housing market predictions for 2020 and beyond based on educated research, real estate data, and experts’ opinions.
Before we answer the main questions, however, it should be noted that housing prices and values in any market depend on certain housing market trends. COVID-19 can’t directly drop or push home prices up. Instead, it will have an impact on those trends which, in turn, will determine what will happen to price. These housing market trends are home sales, housing inventory, and mortgage interest rates. So, let’s see how these trends have been affected by the coronavirus pandemic and what that means for US home prices 2020.
#1. Home Sales
While it’s early to say exactly what impact the coronavirus outbreak will have on the US housing market 2020, experts believe it’s likely to mirror the rest of the economy. And the economy right now is facing a slowdown. As the number of people self-isolating is increasing, this means fewer properties will become available for sale. Some sellers are also postponing listing their homes and apartments until the crisis is over. Consequently, this means that there are fewer buyers viewing and placing bids on homes. Buyers are also less motivated as they’re more concerned about the overall economy and their jobs. According to the National Association of Realtors, home sales in the US dropped 1.3% from the previous year. NAR also forecasts a 10% near-term drop in home sales within the next month.
Moreover, in a survey of its members about COVID-19 and how it’ll affect the housing market 2020, NAR said that 11% of respondents reported lower home-buyer traffic and 7% reported lower home-seller traffic. In brief, more people will be staying put for now. Slow activity and fewer real estate transactions in the housing market mean we could see growth in US house prices slow down. However, it’s highly unlikely that we’ll see any major drop in prices or a housing market crash. Experts trust the market will eventually pick up the pace again after this period of uncertainty is over.
Related: Will the Housing Market Crash in 2020?
#2. Housing Inventory and Construction
Housing inventory and supply is another housing market trend that determines home values and home prices – and another trend that the coronavirus has affected in 2020. Right now, our research shows that there’s a lack of supply in almost all major US cities, especially at lower price ranges. According to data from Realtor.com, the US housing inventory dropped 15.3% year-over-year in February. This is the largest year-over-year drop since Realtor.com started tracking inventory data. US metros that saw the biggest declines in housing inventory are:
- Phoenix-Mesa-Scottsdale, AZ (-42.7%)
- San Diego-Carlsbad, CA (-36.6%)
- San Jose-Sunnyvale-Santa Clara, CA (-36.2%)
- Denver-Aurora-Lakewood, CP (-35.9%)
- Seattle-Tacoma-Bellevue, WA (-33.7%)
Another concern is the construction industry. As the coronavirus pandemic disrupts housing supply, the cost of construction materials (like lumber, aluminum or steel) may increase over the short run or become limited. In turn, this will push the cost of construction up and potentially reduce the speed of new residential development. In short, supply is at near-record lows while the demand is still high. This combination means home prices are also near all-time highs in most cities as many buyers are bidding on a limited supply of homes for sale.
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#3. Mortgage Rate
On March 15th, the Federal Reserve announced a second emergency interest rate cut since the coronavirus pandemic, resulting in a near 0% interest rate. The Fed had decided to cut the rate to minimize the negative effect of COVID-19 on the US housing market 2020 and the overall economy. This could, in turn, encourage home sales despite high home prices as typically, when the federal fund rate is lowered, mortgage rates follow. Moreover, the stock market crash can have an effect on mortgage interest rates, too.
Recently, the average interest on a 30-year fixed-rate mortgage fell to 3.29%, the lowest level on record according to Freddie Mac. Redfin experts predict that the mortgage rate will remain low throughout 2020, hovering around 3.5% – 4.1%. Historically, low housing inventory and rock-bottom mortgage rates would normally set the stage for a highly competitive homebuying season in the spring. However, some experts say that even that might not be enough to bring out potential buyers to the market amid current fears and uncertainties. This shows just how the coronavirus pandemic is making the real estate business anything but normal. The good news for real estate investors is that it’s a great time to get a mortgage to buy a traditional rental property as this is currently the best type of real estate investment.
Related: How to Get the Best Rental Property Mortgage Rates in 2020
So, Will Home Prices Fall in 2020?
Now that we’ve covered the most important housing market trends and how the spread of COVID-19 has affected them, it’s time to answer the main question on people’s minds – what is going to happen to home prices 2020? Are they going to drop in line with the decreasing home sales or rise due to limited inventory and low interest rates?
Well, Zillow conducted a study on housing during previous pandemics and looked into past research and data on the economic effects of pandemics on house values to give their US housing market predictions on what the future could hold. Zillow concluded that home sales dropped dramatically during past pandemics, but home prices remained stable or suffered a slight decrease during the outbreak. This actually makes sense because it’s hard for prices to change when there are few real estate transactions. In short, previous pandemics have simply put the US housing market on pause.
Related: The Impact of the Coronavirus on the US Real Estate Market
According to Zillow, the median home price in the US is currently $247,084 which is an increase of 3.9% over the past year and Zillow predicts it’ll rise 4.1% within 2020. Among its findings, Zillow also stated that while the economic and housing activity fell sharply during an epidemic, they recovered quickly once it was over. Lawrence Yun, the chief economist for NAR, has similar predictions as he said:
With fewer listings in what’s already a housing shortage environment, home prices are likely to hold steady. The temporary softening of the real estate market will likely be followed by a strong rebound once the economic ‘quarantine’ is lifted, and it’s critical that supply is sufficient to meet pent-up demand.
Keep in Mind…
It’s important to note, however, that there’s a good chance the market will remain hot for some markets in the US, but cool for others. Cities where real estate properties are overvalued are more vulnerable to price declines and are more likely to see a downturn compared to the cheaper, more affordable markets. Seattle home prices, for example, have risen dramatically as it has become one of the leading tech hubs in the country. The same goes for Bay Area home prices and the California housing market in general. In addition, markets that saw big price gains recently such as Denver, Salt Lake City, and Boise, ID could also be affected.
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