House Prices Likely to Dip by 2-3 Percent By Year End, Analysts Say

A "For Sale" sign on a residential corner in Centreville, Va., on 29 Aug. 2006. (Paul Richards/AFP/Getty Images)

Home prices have remained resilient despite the pandemic, with experts saying reduced demand has been offset by a drop in supply, though a new forecast predicts a 2-3 percent dip in housing prices through the end of the year.

“Demand absolutely just got a kick in the gut, but at the same exact time, so did supply,” said Skylar Olsen, senior principal economist at Zillow, a real estate and rental marketplace, in remarks to the Wall Street Journal.

While home sales fell over 8 percent in March from February, the COVID-19 outbreak has also driven down supply, with total listings hitting a five-year low at the end of April, according to Redfin, a real estate brokerage.

Prices leading up to the crisis were solid, with figures from the most recent Federal Housing Finance Agency (FHFA) House Price Index (HPI), published in late April, showing that U.S. house prices rose by 0.7 percent in February compared to the previous month.

“The growth in home prices coincides with other data showing robust housing market activity in early 2020 preceding the current crisis," according to Dr. Lynn Fisher, Deputy Director of the Division of Research and Statistics at FHFA.

“Transactions still do not reflect much, if any, influence from the COVID-19 outbreak as of February,” she added.

A “For Sale” sign is on display outside a home in Moreno Valley, Cali., on August 25, 2008. (David McNew/Getty Images)

March saw a dramatic ramp-up in infections in the United States, along with a declaration of national emergency, border closures, and states imposing stay-at-home measures to contain the outbreak.

A more recent market analysis shows the volume of home sales saw a month-over-month drop of 8.5 percent from February to March, according to the National Association of Realtors (NAR).

“Unfortunately, we knew home sales would wane in March due to the coronavirus outbreak,” said Lawrence Yun, NAR’s chief economist. “More temporary interruptions to home sales should be expected in the next couple of months, though home prices will still likely rise.”

With recent Commerce Department figures showing that new housing starts in the United States fell by the most in 36 years in March, supply-side shortages may continue to buoy prices.

Still, a new report from Zillow expects that home prices will most likely fall 2-3 percent through the end of the year, with home sales probably falling between 50-60 percent by April.

A pessimistic and less likely scenario, according to Zillow, would be that home prices drop a total of about 3-4 percent through the end of the year and stay depressed in 2021.

Zillow’s predictions are based on the assumption that Gross Domestic Product (GDP) will fall by 4.9 percent in 2020 and then rise by 5.7 percent in 2021, which is within the range of recent estimates by Goldman Sachs and the International Monetary Fund.