The worldwide pandemic and an economic recession have had a tremendous effect on the nation. The uncertainty brought about by both has made predicting consumer behavior nearly impossible. For that reason, forecasting home prices has become extremely difficult – especially in California.
Stay at home orders have resulted in high levels of unemployment and some businesses going under. Generally, when unemployment has skyrocketed in California, the price of homes starts to go down. Right now, 3.7 million Californians are applying for unemployment benefits – a shocking number.
Normally, there’s a simple formula to determine the future price of any item. You calculate the supply of that item in ratio to the demand for that item. In housing right now, demand far exceeds supply. Mortgage applications to buy a home just rose to the highest level in 11 years. On the other hand, the inventory of homes for sale is at (or near) an all-time low. That would usually indicate strong appreciation for home values as we move throughout the year.
Experts Opinion on Future Home Prices
Some experts, however, are not convinced the current rush of purchasers is sustainable. Ralph McLaughlin, Chief Economist at Haus, explained his concern in their June 2020 Hausing Market Forecast:
“The upswing that we’ll see this summer is a result of pent-up demand from homebuyers and supply-in-progress from homebuilders that has simply been pushed off a few months. However, after this pent-up demand goes away, the true economic scarring due to the pandemic will begin to affect the housing market as the tide of pent-up demand goes out.”
“Recent home purchase measures have continued to show remarkable strength, leading us to revise upward our home sales forecast, particularly over the third quarter. Similarly, we bumped up our expectations for home price growth and purchase mortgage originations.”
“At face value this is remarkable given the scale of joblessness in the economy and the ongoing uncertainty relating to the path of Covid-19…The outlook for housing transactions, construction activity and employment in the sector is looking much better than what looked possible just a couple of months ago.”
The virus and other challenges impacting real estate have created a wide range of thoughts regarding the future of home prices. Here’s a list of analysts and their projections, from the lowest depreciation to the highest appreciation:
- CoreLogic: Year-Over-Year decline of -1.5%
- Haus: Year-Over-Year decline of -1%
- Zillow: Year-Over-Year change is forecasted to bottom out at -0.7%.
- Home Price Expectation Survey: Decline of -0.3% in 2020
- Fannie Mae: Increase of 0.4% in 2020
- Freddie Mac: Increase of 2.3% in 2020
- Zelman & Associates: Increase of 3.0% in 2020
- National Association of Realtors: Increase of 3.8% in 2020
- Mortgage Bankers Association: Increase of 4.0% in 2020
We can garner two important points from this list:
- There is no real consensus among the experts.
- No one projects prices to crash like they did in 2008.
Best and Worst Case Scenarios
Nobody can predict the future and it’s possible that the worst case scenarios may not come to pass. However, it is still important to understand them. Buyers and sellers are more likely to get cold feet in an unstable market and loans are already becoming harder to obtain.
According to Zillow the number of new listings now coming onto the market each day in Los Angeles county is about 30% below what it was a year ago. So while the market hasn’t stopped completely, it is slowing down. In April, sellers started offering some concessions to make the home buying process easier. Concessions could be helping buyers with financing or even paying agents to bring in buyers. Another concession is of course, bringing down the price of the home, but price reductions haven’t been seen on a large scale – yet.
During the SARS outbreak in 2003, the housing market was able to freeze while people practiced social distancing. Once that phase was over, the real estate market picked back up with very little change from pre-pandemic levels. There is also hope that historically low interest rates could help the market maintain its prices.
Whether you’re thinking of buying a home or selling your house, know that home prices will not change dramatically this year, even with all of the uncertainty we’ve faced in 2020. The Shannon Jones Team monitors the housing market on a daily basis so we can provide the best advice possible. Our clients can rest assured that we have the knowledge to successfully walk them through the real estate process.