At the end of 2019, people were worried that the fallout from Brexit and a trade war with China would slow the US economy and, in turn, cause a housing market crash in 2020. But, it’s the unpredictable coronavirus pandemic that led President Donald Trump to call for a national emergency, making a global recession seem like a possible outcome this year. As the novel coronavirus has already affected the stock market, it’s now creating a perfect storm for another housing market crash like 2007-2008. In uncertain times like this, home buyers and real estate investors need to have information about what is happening in the housing market and the broader economy.
Read our 2022 analysis of the US housing market crash here.
Is the housing market going to crash in 2020 due to the shaky economy? Will home prices in the US drop later this year? Is now a good time to buy a home or an investment property? These are some of the most common questions people across the United States are asking. And they’re certainly warranted seeing as the ongoing coronavirus pandemic continues to cause economic disruptions worldwide. In this blog, we’ll update you on current US housing market trends and conditions and give you some predictions and insight into what could happen over the coming months according to housing and financial experts.
Worries of a Real Estate Market Crash 2020
Could a virus really be the cause of the next housing market crash? Not directly. A real estate market crash occurs due to changes in supply and demand and consumer confidence. So, a lot depends on how people react to the situation. And people are anxious. Some homeowners are choosing not to list until the crisis is over as they don’t want strangers going through their homes. They also fear that they won’t get a good price if they choose to sell now. And while there’s enough demand from buyers, they are less likely to buy when they’re more concerned about the overall economy, their jobs, and their ability to pay bills.
If the coronavirus continues to spread fears and uncertainty, this might result in an extended slowdown in the US economy which will affect the housing market. According to housing market crash predictions, the biggest effects of the coronavirus on the real estate market 2020 would be falling home sales and home prices. It may also cause rising unemployment rates as well as lower incomes which would result in missed mortgage payments. A slow economy would also lead to increasing debt-to-income ratios, thus fewer people will actually be qualified to buy. Consequently, this would lead to a crash in demand and an end to the growth in house prices.
To tackle the negative impact of COVID-19 on the economy and the US housing market 2020, the Fed cut interest rates to 0%. The last time the Fed lowered interest rates to 0%, it stimulated demand for houses that people couldn’t afford and risky financing deals which, ultimately, contributed to the housing market crash 2008. So, for those with fresh memories of the Great Recession, it’s apparent that the coronavirus pandemic has triggered the same macro-environment that led to the worst housing bubble in history. But what is the housing market crash forecast from experts and economists? Should people worry about a real estate market crash 2020?
Is the Housing Market Going to Crash in 2020?
That’s a hard question to answer right now, mainly because we don’t know how long the coronavirus crisis will drag on (which is a key factor). A lot of people are saying that the stock market crash 2020 was so bad that it could start a new recession. However, experts say that it’s unlikely that we’ll see a nationwide housing market crash on the scale of the one the US saw in 2008. What’s more likely to happen, on the other hand, is a slowdown in the housing market 2020 as fewer buyers will have the ability to buy houses. As a result, this could lead to slower home price growth going forward – and even a decline in some areas. Moreover, a slowdown in the US economy could also result in fewer home sales nationwide and a buildup of housing inventory. According to the senior economist at Realtor.com, George Ratiu:
If there is a marked economic slowdown accompanied by job losses, that would put a lot of pressure on homeowners. We would see a change in the inventory situation. Instead of a severe shortage, you would start to see inventory ramp up as people get interested in offloading.
However, the fact remains that we’re not there yet. Many housing and financial experts believe that this looming real estate downturn may not even develop into a recession. All of these housing market crash predictions are hypothetical at this point. Yes, it’s possible, but still hypothetical and will ultimately depend on whether the COVID-19 crisis dragged on for months to come. Meaning, we have not reached the turning point and we might not even reach it – at least not on a national scale. Here are more details on why experts don’t expect the next housing market crash to happen in 2020:
#1. Home Prices & Values Continue Rising
When it feels like a recession is looming, it’s easy to become fearful whether you’re a homeowner, buyer, or a real estate investor. However, Redfin chief economist, Daryl Fairweather, reminds us that it’s crucial to remember what actually happened in past recessions before jumping to conclusions. She said:
Home prices declined substantially during the Great Recession, which started with a housing crash. But throughout the 2001 recession, home prices actually rose due to a nascent housing bubble and a shift in investment dollars from the stock market into real estate. It’s perfectly reasonable to expect that a 2020 recession won’t stop home prices from rising since the supply of homes for sale is so constricted and mortgage rates are at all-time lows.
Our research supports this. Realtor.com’s data show that the median US listing price grew by 3.9% YOY in February to $310,000. This is a slight acceleration from previous months. In addition, home values are still rising as we approach the spring season for real estate. According to Zillow, median home values in the US have gone up 3.8% over the past year and are predicted to rise 4.1% within the next year. So as of now, experts clearly don’t see a housing market crash 2020 occurring.
#2. Things Have Changed Since the Last Crash
Among the factors that contributed to the housing market crash 2008 were the easy monetary policy and the reckless lending practices which led to unaffordable mortgage loans. “Creative financing” products qualified people who had no business taking on a mortgage loan, thus creating the subprime mortgage crisis. Fortunately, that’s not the case today. Government regulations made credit requirements stricter. This has created a more stable mortgage industry and, thus, a stronger real estate market. Plus, mortgage borrowers today are better qualified and mortgage default and foreclosure rates are significantly lower than they were 12 years ago. Finally, economists also assure that if employment stays high, most people will still have the ability to make their payments and hold on to their homes.
As for mortgage interest rates, Redfin experts predict that they will remain low during the course of 2020, hovering around 3.5% – 4.1%. For real estate investors, this means now might be a good time to buy rental property. With the lack of supply and increasing prices, most buyers will choose to delay their purchasing decisions and keep renting. The low mortgage rate is a bonus if you’re looking to finance your real estate investment with a loan. Start searching for your next rental property investment here on Mashvisor. Use promo code BLOG15 for 15% off all Mashvisor plans.
#3. The Slowdown Will Only Affect Certain Areas
Last but not least, while experts don’t forecast a housing market crash on a national level, they do believe that some markets will be affected by the economic slowdown caused by the coronavirus pandemic more than others. These markets include those that rely heavily on travel, tourism, and hospitality. For example, with conferences and conventions being canceled, places like Las Vegas could feel the economic toll. Also, tourist hot spots like Orlando, Florida could also feel the pain. This means that Airbnb hosts and investors in these locations will also be affected. For more information, check out: Airbnb Hosts Feeling the Effect of the Coronavirus.
Real estate experts also predict that home prices might drop in some US cities, especially the pricey ones. For example, the San Francisco Bay Area, California is more likely to experience a downturn than affordable housing markets. Booming markets that saw big price gains like Denver, Salt Lake City, and Boise, ID could also potentially be affected.
Finally, the luxury real estate market could have a hard time as well. Multimillion-dollar houses are not exactly a necessity and they take longer to sell even in normal times. Even luxury rental properties – which is where builders have been focusing in recent years – may end up sitting empty. That’s because, when a recession occurs, people will start looking for the best bargain, not for the luxury, high-end home.
If you are looking for additional resources, you can check out our latest real estate video on this topic, available below.
The Bottom Line
The takeaway from this blog is that a housing market crash 2020 is unlikely to occur. The US real estate market is not as fragile as it was during the last recession. It would take a lot more than a short-term economic downturn to cause the market to crash any time soon. Even if the US implemented a lockdown, it would likely affect certain areas and not the country as a whole. Moreover, experts forecast that as soon as the coronavirus crisis is over and the economy improves, the real estate market would rebound fast – maybe within a quarter or two.
Of course, these predictions are based on current housing market trends which are changing as we speak. So if you’re looking to invest in real estate, we highly recommend staying up-to-date on this fluid situation. To stay informed on everything real estate and get updates on the US housing market, sign up to Mashvisor.