The continued economic fallout from the spread of COVID-19 has introduced immense uncertainty into the housing market as consumers step back from large purchases and social distancing puts a chill on necessary market services. As a result, Zillow expects home prices will most likely fall 2%-to-3% through the end of the year from pre-coronavirus levels, and home sales to fall as much as 60%, before both begin to slowly recover to baseline levels by the end of 2021.
The latest forecasts, based on published and proprietary macroeconomic and housing data, also include more pessimistic or optimistic projections based on the duration of the pandemic and the depth of its impact on the broader economy.
The forecasts center around a baseline prediction of a 4.9% decrease in United States GDP in 2020 and a subsequent 5.7% increase in 2021. Under the baseline scenario, we expect:
A 2%-3% drop in prices through the end of 2020, followed by a slow recovery throughout 2021. Prices will return to Q4 2019 levels by Q3 2021.
A 50% decline in home sales from their pre-coronavirus levels, as measured at the end of 2019. Home sales will bottom out in Q2 before beginning to improve near the end of Q2 2020.
Sales volume will recover to about 97% of Q4 2019 levels by the end of 2021.
The pace of recovery is what distinguishes our three scenarios from one another.
Each of our scenarios implies very different paths for home prices and sales volumes. Our optimistic scenario features a small dip in house prices in Q2-Q3 followed by a robust recovery. The baseline medium scenario features a U-shaped trough in Q4 followed by a slower recovery and our pessimistic scenario features continued weakness through all of 2021 (more of a “long U” shape). Under our more-optimistic assumptions, the market could experience a fast, V-shaped “snapback” similar to what happened in the Hong Kong real estate market after the 2003 SARS outbreak. The medium scenario features a “check-mark” shaped recovery and our pessimistic scenario features more of a “wide-U” recovery, with a longer bottom and more gradual pace of improvement.
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