Has COVID-19 paused the housing market? What happens next?
The economic fallout from the spread of COVID-19 has put the housing market in the United States on pause.
New home listings have dropped precipitously. Mortgage lending has gotten even more strict, making it harder to get a home loan. In March, home sales dropped 9 percent nationwide compared to the previous month, according to Redfin. The drop in April is certain to be even more dramatic.
But what will the housing market recovery look like once the pandemic passes and the economy reaches its new state of normal? A number of new reports explore how it might play out.
Academic and real estate consultant Mike DelPrete looked a new home listings data for five markets in varying stages of sheltering in place—New York City, Portland, Austin, Seattle, and California’s East Bay, which includes Oakland and Berkeley. He concludes that new home listings bottom out after just a week of sheltering in place, and stay at that bottom for 3 to 4 weeks before gradually starting to rise.
This suggests that the housing market recovery on a graph would be shaped like a checkmark—a sharp immediate decline to a bottom and then a slow recovery back to pre-pandemic levels. According to DelPrete, New York City is currently still at the bottom point, while Seattle, Austin, and the East Bay have started to move up in terms of new listings.
Pageview data from Zillow seems to support this general theory. When the pandemic hit, Zillow saw a 19 percent year-over-year drop in pageviews nationally on March 22. As of April 15, the seven-day trailing average for pageviews nationally was up year-over-year by 18 percent. This suggests the buyers and sellers are resuming their home search and will be ready to buy and sell again when quarantines lift.
But Zillow pageview data varies across markets. In New York City, one of the hardest hit cities in the world, pageviews are currently still down by 2 percent year-over-year. But Austin is up 35 percent year-over-year, Los Angeles is up 32 percent, and Houston is up a whopping 56 percent. This suggests that cities with big year-over-year jumps have pent up demand for housing.
Ralph McLaughlin, chief economist for homebuying platform Haus, forecasts that the pandemic will cause a sharp drop during the spring and a noticeable rebound in the summer. He believes this will be followed by another dip in the fall as a result of a second wave of the novel coronavirus, and then something of a return to normal in spring 2021. He forecasts a 35 to 45 percent drop in home sales over the next three months, and as much as a 50 percent drop in single-family building permits for the rest of the year.
Notably, he doesn’t expect home prices to fall by much, if at all. In the worst scenarios, he says home prices may fall between 1 and 2.5 percent in markets in the West Coast, Nevada, and Florida. This is consistent with what’s become the conventional wisdom around the housing market during the pandemic: home sales will drop dramatically during shelter-in-place orders, but prices will be largely unaffected.
Of course, predictions and forecasts made in the midst of the pandemic should be taken with a grain of salt because there are so many uncontrollable variables. It’s unknown how long the pandemic will last, whether there will be a second wave of it in the fall or winter, or how well federal and state officials will manage the crisis.
There is also the unresolved issue in the mortgage industry surrounding mortgage forbearance. Federal regulators have offered up to a year of mortgage forbearance for homeowners effected financially by the pandemic. While this provides relief for homeowners, it also stops money from flowing through the mortgage industry. If this problem is mismanaged and parts of the mortgage industry fail, it would certainly slow down the housing market recovery.