After the COVID-19 pandemic came into being, US housing market predictions 2020 went from optimistic to pessimistic as the lockdown intended to slow the spread of the coronavirus has stalled the real estate market. This current market stall presents a unique challenge when tracking how real estate trends are performing now and what to expect moving forward. But recently, a number of housing and economic experts have issued their real estate market forecasts for the US. In this article, we break down these predictions for real estate investors to understand what to expect through the end of 2020 and into 2021.
1) Home Prices Predictions
The first housing market forecast comes from Freddie Mac. In its latest outlook, the economic and housing research group predicted that US home prices would level off or dip slightly (0.5%) over the next four quarters. They also expect that house values would rise again sometime during the latter part of 2021. According to Freddie Mac, they don’t expect house prices to dip significantly because the “fiscal stimulus provided by the CARES Act will mute the impact that the economic shock has on house prices”.
However, a recent forecast from the housing research team at Zillow offers a gloomier prediction for housing prices. Zillow’s latest forecast is based on the assumption that the GDP will decrease by 4.9% in the United States this year and then increase by 5.7% in 2021. Under this scenario, Zillow forecasts house prices to drop by 2% – 3% by October from their February values. But like Freddie Mac, experts at Zillow also predict a slow recovery, estimating that home prices will return to their pre-coronavirus levels by late summer of 2021.
Meaning, general housing market predictions are that housing prices will fall through the end of 2020 before recovering in Q3 of 2021. This is good news for real estate investors looking to buy a rental property in a strong housing market. But keep in mind that home prices are unlikely to fall to the bargain-basement prices many were hoping for. So if you want to get into real estate investing, we recommend making your move while housing prices and mortgage rates are low. To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.
2) Home Sales Predictions
According to Realtor.com, the pace of home sales relative to inventory reached a new record high in February, as sellers gained leverage and buyers benefited from lower mortgage rates. But the federal government’s shutdown of “non-essential businesses” has paused most real estate transactions. A new report from Fannie Mae forecasts that home sales will fall by nearly 15% in 2020 compared to 2019 numbers. The mortgage giant currently predicts the economy and home sales both to rebound in 2021. However, that rebound is depending on the pandemic’s trajectory.
Zillow’s recent report also includes their housing market predictions for home sales. The company expects a whopping 50% – 60% decline in home sales from its pre-coronavirus levels. Experts at Zillow forecast home sales to bottom out in Q2 2020 before they slowly recover to baseline levels by the end of 2021. Another US real estate market forecast from Zillow is that nationwide home sales will slowly recover and return to their pre-coronavirus levels by the end of 2021. Still, Zillow noted that the pace of recovery highly depends on the scale and success of social-distancing measures, among other factors.
3) Housing Supply and Demand Forecast
The impact of the COVID-19 pandemic on home sales is expected to change the real estate supply and demand in the US housing market. On the demand side, the fast increase in unemployment as a result of the coronavirus pandemic and its accompanying stay-at-home orders will limit many Americans’ ability to afford a purchase as big as a home. Experts at Capital Economics also predict that the economic cost we’re paying to contain the virus will weight down the economy in 2021. Based on their data, US home sales are expected to be around 6 million in 2021 instead of the previously projected 6.3 million.
Meanwhile, on the supply side, the number of homes for sale is falling as sellers are pulling their listings from the market. Sellers are either hesitant about allowing strangers to tour their homes or are worried that the lack of demand is placing downward pressure on the sales price they might otherwise receive. Also, home-building activity following the Great Recession didn’t keep up with the demand, creating a significant gap in the marketplace. Consequently, housing market predictions for 2021 according to economists’ expectations are that the low supply would prevent buyers from finding a property that they could afford.
4) Housing Affordability Predictions
Affordability was already an issue for the housing market 2020, even before the coronavirus hit. The housing affordability index determines the affordability of the housing market by comparing the median household income to the median house price. An affordability index of 100 means the average person could afford the average home. An increasing affordability index, however, means more people are priced out of the real estate market. According to the National Association of Realtors, the national housing affordability index was 162.10 in March 2020 compared to 153.40 in March 2019. In other words, homes are less affordable now than a year ago.
Of course, we can relate this issue to the coronavirus pandemic and its effect on housing market predictions for 2021. The lockdown caused unemployment to increase as many people lost their jobs. This adds to the millions of households seeing their income drop. Keep in mind the first US housing market forecast which is that home prices will remain steady or drop just a few percentage points. The end result is a significant drop in the average household income while the cost of the average home remains almost unchanged. For a real estate investor, this means that there will be an increasing demand for rental properties when the coronavirus pandemic is over.
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Is The Housing Market Going to Crash In 2020 or 2021?
Even though the US housing market likely won’t be the cause of the next recession, a downturn in the economy would still have an impact on the real estate market. The overall housing market could enter a recession in under five years, with Zillow predicting that it will start in 2020. People now ask if this will cause a housing market crash. According to economists, the spillover to the housing market will rely upon the length, depth, and severity of the 2020 coronavirus recession. So far, experts are optimistic that we will not see a housing market crash throughout the rest of 2020.
In addition, you should always keep in mind that national real estate trends can vary quite a bit from one city and state to the next. According to US housing market predictions, some parts of the country will feel the effects of a recession worse than others. When it comes to home prices, for example, some markets could sail through the current crisis with a mere slowdown in price appreciation, but others could feel a measurable drop. Thus, even though there won’t be a nationwide housing market crash, local markets might suffer more than others and take longer to recover. This is why you, as a real estate investor, must always remember to analyze your housing market of choice before buying an investment property.
Will Real Estate Conditions Shift to a Buyer’s Market in 2021?
For years, the US housing market was described as a strong seller’s market. But as the COVID-19 pandemic is affecting both sellers and buyers in 2020, the market’s dynamics are shifting. As mentioned, the rate of new home listings entering the market has gone down significantly, adding very little new housing inventory to the national pool of listings. Similarly, there are fewer closed sales due to social distancing measures. Does this mean the real estate market will shift into a buyer’s market in 2021?
According to housing market predictions from Realtor.com, it could. If the real estate market resets and picks back up later in the year, listings and sales will likely increase. As listings start coming to the market, this accumulation of listings will drive up months’ supply figures. In turn, this will temporarily shift us to a buyer’s market. Then, as the rate of buyers catches up to listings, this sales and listings dynamic will start to balance out. However, it remains to be seen where it ends up at the end of the year.
What should you do if you’re planning to sell a house during the pandemic? If you absolutely need to sell, expect homes to be slow to sell. You might also have to lower your asking price. But if you can, you may want to wait a few months to see is things will shift from a buyer’s market to a more balanced market. The only exception, however, would be for owners of affordable homes that are in short supply. If this is the case for you, then you’ll have a seller’s market as soon as people are allowed to go back out shopping.
The Bottom Line
Experts point out that it’s still too soon to make reliable housing market predictions for 2021. It all depends on how much longer the nation must deal with the coronavirus pandemic as well as how quickly the economy can recover. However, some analysts say that the real estate market will be a key driver in economic recovery toward the end of the year. We also expect this to be the case seeing that some markets are still great locations for investing in real estate and buying rental property. To stay informed on the latest real estate news, keep reading our coronavirus trends blogs.
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