With the housing market hobbled by Covid-19, pending home sales dropped nearly 21 percent in March, according to new data from the National Association of Realtors.
Overall, NAR is forecasting a 39.5 percent drop in home sales during the second quarter, an “off-the-chart negative” decline, chief economist Lawrence Yun said.
But the pain could be temporary, with the market returning to a new normal during the second half of 2020, Yun said. For the full year, NAR projected a 13.5 percent drop in home sales, compared to the 3 percent increase that was expected prior to the pandemic.
Citing pent-up demand, low inventory and low mortgage rates, NAR projected prices will rise 1 percent in 2020. “As the economy steadily re-opens and people feel more comfortable about social distancing activities, home buying should normalize,” Yun said.
NAR’s forecast is the latest prediction for the U.S. housing market. Freddie Mac has projected a 45 percent drop in the second quarter, compared to Fannie Mae’s 25 percent and the Mortgage Bankers Association’s 10.4 percent.
The average of the three is nearly 30 percent, according to a recent report from William Blair, which projected a 45 percent “spike” in refinance applications this year. “The recent rate reduction has created more than 14 million rate refinance eligible homeowners,” the report said.
Appearing on CNBC on Tuesday, Compass CEO Robert Reffkin said that search activity dropped 36 percent in March. “As the curve has flattened for new Covid cases, we’re seeing a proportionate flattening of the curve in activity in the real estate market,” he said.
But Reffkin said this week that both the number of new listings and new contracts are up 20 percent. He noted that buyers have shifted their focus to single-family homes (over condos) and properties with pools and outdoor space. He predicted second-home markets would rebound quickly as people rethink international travel.
Many experts believe that prices will be relatively flat for the rest of the year. NAR projected a 1 percent increase in 2020.
Skylar Olsen, senior principal economist at Zillow, said even if prices may go soft – particularly on the high-end – values will be “nothing like what we saw in the last housing crash.” Between 2008 and 2012, she said, home values dropped 30 percent. This time around, Zillow is predicting a 3 percent drop in home values, she said.
“Because of the sheer logistical challenge of everything right now, supply is shocked,” Olsen noted. “When you have a supply shock, that comes with upward pressure on prices. So the supply-and-demand shock are keeping prices more stable.”
Zillow data show home searches were down 19 percent in mid-March, but Olsen said the numbers are creeping up. As of April 15, searches were up 18 percent year-over-year. (New listings were down 38 percent on April 22, after dropping 44 percent on April 19.) “So many questions these days are, ‘Is now a good time to buy?’ They absolutely are considering it,” she said.
But instead of a V-shaped recovery, Olsen said an initial burst of activity will be followed by slower growth. “The imbalance is not coming from housing itself,” she said. “It’s anchored in job loss and economic uncertainty.”