As the coronavirus still looms over the US housing market and economy, experts weigh in and offer some insight into what recovery will look like for real estate. Although there are different opinions across the board as to the shape of the recovery of the US real estate market (V-shaped, U-shaped, or W-shaped), there is a general consensus when it comes to US home price predictions and that includes a drop.
Home Price Predictions – An End to Growth?
The US housing market has enjoyed 9 years of real estate price growth. However, a new home price forecast put forth by a few reputable real estate companies shows that this will come to an end thanks to COVID-19. Here, we will look at these predictions from:
The Zillow Home Price Expectations Survey
The Zillow Home Price Expectations Survey asked 106 economists, real estate experts, and investment strategists for their forecasts. The focus of the survey was the effect of the coronavirus on the housing market as well as recovery predictions.
For real estate prices specifically, the survey showed that most experts agree that prices will fall 0.3% in 2020. When the survey was conducted three months ago, the results showed a growth in home prices of 3.3%. This major change in forecast shows how much of an impact COVID-19 is set to have on housing this year and beyond. Terry Loebs, the founder of Pulseconomics, commented on this negative forecast:
This is the first time since 2012 that the panel-wide price outlook has turned negative, and the quarter-to-quarter swing in expectations is the largest we’ve seen in more than a decade. Longer term, the outlook for home values nationwide is mixed — price projections for 2022 and beyond actually inched higher from levels recorded prior to the Covid-19 outbreak. However, nearly seven in ten experts now indicate that their five-year forecast has downside risk. Last quarter, fewer than four in ten panelists foresaw the downside — of course, that was before the Covid-19 crisis, its economic devastation and unprecedented government response.
Zillow’s Home Price Predictions
Zillow put out its own forecast based on housing market data and also reported an expected decline in house prices this year. The real estate company predicts that, by October 2020, prices will have dropped by 1.8%. A full recovery in prices won’t be seen until Q3 2021, according to Zillow, at which point prices are expected to return to Q4 2019 levels.
CoreLogic’s Home Price Predictions
Corelogic put out a similar home price forecast this week. Prices are expected to drop by 1.3% year-over-year by April 2021. Corelogic did, however, shed some light on how home price fluctuations will differ in local real estate markets. The property data and analytics company sees prices dropping across 41 states. The areas to see the largest declines are those who have suffered due to the effect of the coronavirus on the sectors of tourism and oil and gas. The Southern California real estate market, on the other hand, will actually see a rise in prices by April 2021:
- Los Angeles County: +3%
- Orange County: +5%
- The Inland Empire: +6%
Selma Hepp, Corelogic Deputy Chief Economist, said that this strength in real estate prices in the Southern California real estate market is not very surprising as “all the fundamentals are there”. The general wealth in the region, low housing inventory, low mortgage rates, and an increasing number of millennial homebuyers will help prop up prices and keep them on an upward trajectory.
What This Means for Real Estate Investors
Projected price drops may worry future and present real estate investors holding onto investment properties. However, there are strategies to implement during these times to make the most of the situation.
If you own an investment property that is already cash flow positive, now would not be the time to consider selling. Continue with your buy and hold real estate investment strategy for now.
If you wish to buy a rental property, now could be a good time to invest in real estate as you may be able to get a better deal during this time if prices do drop. Start looking for positive cash flow investment properties for sale.
However, it’s important to keep the location in mind. Although prices are forecast to drop, there are still hot markets. For instance, the Boston real estate market is reportedly a very hot seller’s market right now, even during the pandemic. Some houses for sale are receiving multiple offers within days of being listed and are going for above asking price. Conduct a local housing market analysis before making any kind of move based on national forecasts.
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