Driven by pent up buyer demand and low-interest rates, home sales in the U.S. will rebound in late summer and early fall as fears of the coronavirus begin to wane before experiencing a downturn again later in the year, according to a revised 2020 housing forecast released today by realtor.com®. The updated forecast finds that despite an uptick in transactions during the third quarter largely driven by millennials, home sales will be down 15 percent year-over-year.
The forecast also expects home prices to flatten nationally as demand shifts to the secondary markets, which offer buyers more affordability and space.
According to realtor.com® Chief Economist Danielle Hale, the path forward for home sales will resemble a W shape with homes sales rebounding in July, August, and September as fears of the coronavirus taper off and buyers return to the market to make up for the lost spring homebuying season before dipping again in the final months of the year as virus infections spike again and the lingering impact of the high unemployment rates are felt.
“The U.S. housing market started 2020 with substantial momentum. With some of the best home sales and housing starts in more than a decade, our biggest challenge going into the spring home-buying season was a lack of for-sale homes. The coronavirus pandemic has kept both buyers and sellers on the sidelines, preserving market balance, for now,” Hale said. “As cities and states begin the slow process of reopening, we’re going to see a see-saw recovery with ups and downs that will favor the nation’s secondary markets in the short-term.”
Hale added, “The pandemic is leaving an imprint on the fabric of American life, culture, and preferences which we could see for years to come. After experiencing life under quarantine, many buyers are searching for affordability and greater space, which is driving demand out of the nation’s largest metros and into surrounding smaller towns.”
The updated forecast projects mortgage rates to drop to new lows below 3 percent by the end of the year, primarily driven by an accommodating Fed and tepid economic outlook.
Although rates will be favorable, the qualifying criteria will be tougher than normal as lenders seek to mitigate their own risks amid the unfolding economic uncertainty globally. The stricter qualifying criteria will require buyers to have higher credit scores in addition to more cash for down payments. Shopping around for the best rates and terms will be particularly important over the next year.
Home prices are projected to flatten, increasing just 1.1 percent for the calendar year and possibly registering small declines by the end of 2020. With many sellers remaining on the sideline and a decline in housing starts, inventory will remain constricted. Under normal market conditions, prices would be expected to skyrocket as inventory evaporates, but buyer demand is expected to see-saw throughout the year as secondary waves of coronavirus infections continue to spread throughout the U.S. During these periods, sales are forecasted to take a hit as sellers de-list properties and buyer demand abates.
|
Housing Metric |
2020 Updated Forecast |
2020 Original |
2019 Actuals |
|
Existing Home Sales (million) |
4.5 |
5.25 |
5.34 |
|
Existing Home Sales YoY |
-15% |
-1.80% |
0.00% |
|
Existing Home Prices |
$275K |
$274K |
$272K |
|
Existing Home Prices YoY |
+1.1% |
+0.8% |
+4.9% |
|
Single-Family Housing Starts |
-11% |
+10% |
+1% |
|
30-Year Fixed Mortgage Rate |
3.2% |
3.5% |
3.9% |
Buyers will have difficulty finding available homes for sale
Although qualifying for a loan will be more stringent, finding a home for sale will still remain the largest hurdle this year. The number of new homes for sale was down 45 percent year-over-year in April. However, with home prices expected to remain relatively stable, potential home buyers should have less competition from all-cash investment buyers, unlike the 2008 recession where they dominated the market.
Buyers should expect periods of very low inventory turnover, especially if subsequent COVID-19 flare-ups occur, creating a ‘what you see is what you get’ environment. In some areas, buyers may find sellers leaning heavily on digital technology, such as virtual tours, instead of hosting traditional open houses. Determined buyers may need to be prepared to pull the trigger on a home sight unseen.
Sellers will take a step back from the market
Sellers are expected to face their own array of challenges in 2020. A well-priced home would normally generate multiple offers, however, that may not be the case this year. Many sellers, who will also be subsequent buyers, will find the slower pace of sales and longer time on the market have made timing a sale and a corresponding home purchase increasingly difficult compared to prior years.
A lack of new homes for sale this spring — traditionally the busiest time of year for real estate — has signaled that sellers have adopted a certain level of patience in listing their homes.
Market Drivers
- Baby Boomers – Many Baby Boomers, who have already held onto properties longer than expected, may decide to postpone their home sale another year until things begin to normalize. This will further constrict the number of homes for sale. The Baby Boomer generation may see their share of home purchases dwindle in 2020 as members of the generation step back from the marketplace.
- Millennials – Millennials will continue to be a dominant buying force in the market. Because millennials are making home purchases from a less discretionary perspective, they will continue to grow their share of home purchases. Millennials are projected to make up 50 percent of home purchases in 2020, but this number could grow if older generations decide to step back from the market.
- Secondary Markets – Secondary markets throughout the U.S. with resilient jobs markets could see greater than normal demand as buyers continue to search for affordability and additional space. As these markets heat up, we also expect to see a change to the mix of homes available for sale nationwide. As the mix of homes for sales shifts, we could see the national listing price decline to reflect the change towards more affordable homes.
- Election – The 2020 presidential election will continue to be a wild card this year. Historically, economic strength is a good predictor of how people will vote.
- Global Economy – The global economy will be key to watch this year. The U.S. is heavily dependent on imports and exports, so if the global economy is struggling, the U.S. will feel that impact. As the U.S. and the rest of the world continue to fight the COVID-19 pandemic, economic health here and abroad will be extremely important.
