Key highlights from this report:
- Several research groups have published U.S. home-price forecasts recently.
- While they all vary slightly, there is a bit overlap in terms of projections.
- The consensus is that home prices could dip slightly in the second half of 2020.
- The coronavirus pandemic and resulting job losses are the primary cause.
In recent days, a number of housing and economic research groups have issued home-price forecasts for the U.S. Several of those predictions extend through the end of 2020 and into 2021.
The general consensus is that home prices in the U.S. will almost certainly level off over the coming months. They could also dip slightly — and temporarily — during the second half of this year.
Freddie Mac Forecasts Slight Dip in Home Prices
The first forecast comes from the economic and housing research group at Freddie Mac, the government-sponsored corporation that buys mortgage loans from lenders. Freddie Mac puts out a forecast each month, which offers predictions for a number of indicators.
In their latest outlook, they predicted that home prices in the U.S. would level off or dip slightly over the next year or so. In mid-April, the team at Freddie Mac wrote the following:
“We forecast house prices to fall 0.5 percentage points over the next four quarters.”
Looking beyond that, they expect house values to begin rising again. This would occur sometime during the latter part of 2021, in their estimation. Eventually, limited housing supply and pent-up demand will begin to lift prices again.
According to their mid-April forecast:
“Two forces prevent a collapse in house prices. First, as we indicated in our earlier research report, U.S. housing markets face a large supply deficit. Second, population growth and pent up household formations provide a tailwind to housing demand. Price growth accelerates back towards a long-run trend of between 2 and 3% per year.”
Zillow Offers a Somewhat Gloomier Prediction
Another, more recent, forecast for U.S. home prices came from the housing research team at Zillow. On May 4, Zillow’s economists predicted a comparatively steeper decline in home values nationwide. But they too predicted a rebound starting sometime in 2021.
In its May 2020 forecast update, the company stated:
“Zillow expects home prices will most likely fall 2%-to-3% through the end of the year from pre-coronavirus levels…”
They also predicted a drop in home sales through the rest of 2020, which is something we are starting to see already. Zillow’s researchers see a rebound occurring toward the end of 2021, when prices and sales will “slowly recover to baseline levels.”
That was the middle of three predictions offered by the team at Zillow. It was their “medium” outlook. They also issued an “optimistic” forecast, along with a “pessimistic” one. In all three scenarios, they see house values in the U.S. dropping by some extent over the coming months.
The table below shows their three forecast scenarios, as of May 2020.
CoreLogic Predicts House Values Will ‘Soften,’ but Not Drop
And now for a contrary view. A recent home-price forecast from the property data company CoreLogic predicted the house values in the U.S. would “soften” over the coming months. But they don’t see prices declining later in 2020, as the previous forecasters do.
In a May 5 blog post, CoreLogic’s lead economist Molly Boesel wrote:
“We can expect to see home price growth slow in response to this interruption in demand, with the HPI Forecast predicting a gain of 0.5% by March 2021.”
Note: This was a one-year outlook, extending from March 2020 to March 2021. They expect house values to basically level off during that period.
Stronger Housing Markets Could Weather the Storm
Home price forecasts like these are useful in a broad sense. They give us some idea of what might happen over the coming months, as a result of current trends. Emphasis on “might.” But it’s far from an exact science.
It’s also important to realize that home price trends can vary quite a bit from one city and state to the next. Some local housing markets across the U.S. could sail through the current crisis with only a mere slowdown in home-price appreciation. Other markets could see a measurable drop in house values.
We recently shared a report from Veros Real Estate Solutions that ranked the 10 strongest housing markets over the next 12 months.
Real estate markets like Boise, Idaho (one of the hottest in the country going into the crisis) might only experience a slowdown in home-price appreciation through 2020. In other markets, prices could flatten through 2020 and into 2021. Still others could see a drop in home values.
So it’s going to be a mixed bag, going forward. The home-price forecasts mentioned above focus on the nation as a whole. But when you drill down to the city level, there’s quite a bit of variation.
The more expensive housing markets are more likely to see price declines through 2020 and into 2021. The same goes for cities hit hardest by the coronavirus outbreak, where strict stay-at-home orders remain in place.
But all of this is temporary. The general consensus among most economists and housing analysts goes something like this: Home prices in the U.S. will take a small hit this year, followed by a rebound starting sometime in 2021. Some have even predicted a recovery starting later this year.
This too shall pass.
Disclaimer: This article contains home-price forecasts issued by third parties not associated with the publisher. Real Estate and economic predictions are the equivalent of an educated guess and should be treated as such.