2020 Housing Trends
State of Housing – Before and After COVID-19
Housing started 2020 with substantial momentum as evidenced by hitting some of the best home sales and housing starts pace in more than a decade in the December 2019 to February 2020 period. The inventory of homes for sale hit new lows and was likely to continue to present one of the biggest obstacles to additional home sales pre-COVID. With record high prices, affordability was a driving concern that led many to look to affordable suburbs or secondary markets.
COVID-19 has affected both buyer and seller willingness to transact sales in the time that the virus is actively circulating in many communities due to social distancing concerns and hesitation among many to complete a 100% virtual transaction. Additional economic uncertainty has compounded this temporary reticence.
We expect home sales to rebound as virus-concerns wane, but a later dip in sales as a result of a combination of a future rise in infections and lingering unemployment will lead to a see-saw recovery with ups and downs.
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 pop up throughout the U.S. During these periods, sales are forecast to take a hit as sellers de-list properties and buyer demand abates.
Buyers will likely see fewer homes available for sale and periods of low-churn or few fresh listings like we’ve seen this spring, especially during local COVID flare-ups. The limited number of homes for sale will keep home prices relatively stable and this may give buyers using a mortgage (especially Millennials) some relief against investors and other cash-heavy buyers who are expected to play a smaller role.
While mortgage rates will be favorable, qualifying criteria will be tougher than recent years as lenders seek to mitigate their own risks against economic uncertainty. This will mean buyers need more cash for a downpayment and higher credit scores in order to get a loan with many lenders. Shopping around for the best rates and terms will be particularly important.
After extensive time spent at home, home buyer preferences for space and quiet have gained renewed attention. These preferences plus a renewed focus on preparing for the unexpected are likely to keep affordable suburbs and secondary markets top of mind for many buyers. Already, we’ve seen a trend of more large metro shoppers looking for housing outside of their current metro which is likely to continue.
Sellers, many of whom will also be buyers, will grapple with the buyer conditions as well as their own set of challenges. With a slower pace of sales and longer time on market, it will be more difficult to time a home sale and subsequent purchase, so while it may be easier to have an offer with a home sale contingency accepted, it may be harder to complete this type of transaction.
Early in the crisis, sellers showed a willingness and ability to respond to the evolving situation by deciding not to list in the spring, a typically busy time for housing. Many sellers are expected to come back to the market in late-summer when COVID infections are expected to abate enough to permit a resumption in many types of activities, giving buyers options and boosting sales in these months.
Historically, a strong economy favors an incumbent president. Will voters judge the President against a pre-COVID baseline or COVID-adjusted baseline? We expect the economy is likely to be better than the COVID ‘worst case’ but not fully recovered before the vote.
In our early-March survey of spring buyers, which was in the field as concerns mounted but before COVID shelter-in-place orders became widespread, the share of respondents indicating they were not planning to purchase a home within the next year on account of the 2020 election was actually higher than those indicating that COVID was the cause of their not purchasing within the next year.