Friday, July 24, 2020

Where Does The U.S. Housing Market Go From Here? Four Experts Share Predictions For The Rest Of 2020

Mortgage rates are searching for a historic bottom. Home prices are inching up toward record highs. Home shoppers are looking for deals. Homeowners are weighing selling versus refinancing.

A lot is going on in the U.S. housing market on the backdrop of an even messier national state of affairs. After an unprecedented first half of 2020, what could the next six months bring? Here is what five housing economists and experts anticipate.

Is it going to be a V-shaped or a W-shaped housing market recovery? Why?

Ralph McLaughlin, chief economist and senior vice president of analytics at Haus, a home equity startup:

“It’s going to be a W shape housing market recovery for three reasons. First, we think there will be an initial rebound simply due to pent-up demand for home buying that would have otherwise occurred in March, April, and May but will simply be pushed to June, July, and August. But after that, we’re not expecting new demand to replace it at comparable levels, which will lead to another drop in activity. Second, and I think we’re seeing this already, is that the virus will make a comeback, which will lead to less demand for homebuying in the fall. Third, there’s a possibility that we’ll see a broader impact on housing demand if the federal unemployment insurance bonus runs out at the end of the month.”

Taylor Marr, lead economist at real estate brokerage Redfin:

“Most certainly a W, though the second dip is likely to be way more muted than the first. The initial impact was so deep because uncertainty was extremely high. Financial markets and mortgage markets hate uncertainty, so they were impacted more by the initial shock. However, they, then, stabilized and have been recovering, which has helped housing recover as well.

What housing indicators will trend up in the second half of 2020?

Todd Teta, chief product and technology officer at real estate data and solutions provider Attom Data:

“If prices continue to level off or go down, which seems likely given current economic conditions, home equity levels will also drop. At the same time, unless the economy races ahead, unemployment will remain high, which probably will lead to foreclosures rising after the moratorium is lifted on lenders pursuing delinquent homeowners with federally insured mortgages. (The moratorium is currently in effect until August 31.) Under the current scenario, the most likely thing to trend up will be foreclosures, whenever the moratorium expires.”

What will have to happen for more home sellers to come back to the market?

Marr: “Lower coronavirus transmission rates within a community will ease some health concerns of sellers, and continual reopening of the economy will ease concerns about job losses as well. The longer the pandemic keeps businesses closed, the more cautious sellers will be about their own financial situation. But it’s also an issue of lack of inventory, which makes this a bit of a chicken or the egg issue. Move-up buyers need to find another home before they decide to list, but there aren’t enough homes for sale as sellers aren’t listing as much (relative to buyers making offers).”

Tucker: “A lot of boomers were already sitting tight in their homes, and now it’s understandable that people would delay moving into nursing homes. The best hope for a source of new listings might be builders, who seem to be recovering confidence after pressing pause on construction during shutdowns this spring.”

Where are home prices going?

Marr: “As mortgage rates decline, prices rise. Demand fell, but so did supply, which muted any impact to home prices. Right now, they are continuing to grow at the same pace as before the pandemic. Growth may slow as the economic impacts grow, but the consensus is that home prices will continue to rise over the year.”

Tucker: “Overall, Zillow is forecasting a slight decline in home prices through October, followed by a slow recovery through 2021.”

McLaughlin: “We think price growth is going to slow, and even possibly turn negative, by the beginning of next year, as lower aggregate demand emerges and legislation that protects homeowners from foreclosure expire. However, we do expect price grow quite strongly by the end of next year, growing between 4-6% on a year-over-year basis.”

Teta: “Some pockets around the country may do well – like suburban areas around big cities if large numbers of people decide to move because of concerns that it’s too risky to stay in densely populated places where the virus has spread so rampantly. That could sew a silver lining into the market. But it may be more likely that the price boom of recent years is in serious jeopardy.”

The consensus is that mortgage rates will stay low – do you agree? What will keep them low? What may make them go up?

Marr: “The global economic environment is very uncertain and will be for quite some time, which keeps long-term bond yields low—which mortgage rates track. A swath of positive economic news will shift investment from bonds to stocks, which may make rates rise, but the rise would be limited as the spread between mortgage rates and 10-year treasury yields continue to be fairly high and has a bit of room to narrow, before mortgage rates rise much.”

Teta: “It does look like they will stay low in the near future, or longer. The federal government is actively looking for ways to stimulate the economy, which includes low-interest rates. Until the economy shows a significant recovery or when inflation spikes, the current super-low rates probably are unlikely to rise much for some time. When there is notable inflation, that could certainly shift rates back up.”

Who might emerge as “winners” in the 2020 housing market?

Tucker: “Identifying winners is a little macabre, but millions of homeowners could save thousands of dollars on interest by locking in these low-interest rates with a purchase or refinance loan.”

Teta: “Savvy bargain hunters and possibly sellers in suburban regions. Buyers with good credit, enough money for a significant down payment and some patience could land some very nice deals if prices keep flattening out or declining. Those buyers could include investors who can rent out properties for a while and then flip them when the market bounces back. On the seller side, anyone who finds themselves in newly sought-after areas also could benefit nicely from a shift in interest among buyers who want to move away from areas where the virus has spiked.”

Who the “losers” might be? 

McLaughlin: “Buyers who thought they were going to get the deal of a century.”

 

This article was written by Dima Williams from Forbes and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.