As COVID-19 progresses, the economic expansion is starting to unravel, bringing down home sales this year, according to new projections released Wednesday.
The Fannie Mae Economic and Strategic Research Group forecast 14.7 percent less sales this year, along with 9.3 percent fewer housing starts, as a result of the virus, its economic impact and social turmoil. Based on their projections, existing-home sales should sink to 4.54 million this year, down from 5.34 million in 2019.
In addition, the analysts amended their economic estimates, now anticipating GDP gains to reverse, both in the first and second quarters of the year—criteria fitting a recession. However, they also anticipate a considerable rebound in 2021, barring the mitigation of the virus. The forecast is, overall, still tentative.
“Our baseline forecast of a 3.1 percent contraction in real GDP in 2020 acknowledges the economic downdraft and, considering the unprecedented monetary and fiscal policy responses, suggests a solid-but-incomplete recovery exiting 2020,” said Doug Duncan, chief economist at Fannie Mae, in a statement.
Prior to the spread in the U.S., the housing market remained solid, with construction ramping up and sales on a tear. Today, the contrast is severe. For the fifth straight week, applications for home purchases shrank, according to the Mortgage Bankers Association, and REALTORS® report buyer demand is slowing, along with listings and showings.
According to Lawrence Yun, chief economist for the National Association of REALTORS®, “the homes sales forecast will depend on COVID-19’s path and, therefore, a lot of uncertainty remains. Given the massive size of the economic stimulus, a good portion of the lost income will be made up throughout the pandemic period. Mortgage rates will remain at historically low levels throughout the year.
“However, missing the spring buying season will hurt overall sales,” says Yun. “The rebound will occur, but not sufficiently. I anticipate sales to be down around 5 percent- 10 percent in 2020. One certainty is that home prices will be holding fairly steady—we had a housing shortage before the pandemic, and now even fewer listings exist.”
“In our view, the negative shock will apply to both the home purchase and rental markets,” Duncan, of Fannie Mae, said. “On the demand side, early indications are that the purchasing benefit of lower interest rates are being offset by the downturn in employment. On the supply side, the number of listings is falling, as those with homes to offer may either be hesitant to allow strangers to tour their home or worry that the lack of demand is placing downward pressure on the sales price they might otherwise receive.”
“The purchase market is still expected to rebound, as long as the public health measures to reduce the pandemic’s spread are successful and result in a broader recovery,” said Joel Kan, of MBA, in a statement this week.
On the purchase side, the approximately 15-percent decrease in sales translates to $1.11 trillion in originations, down from $1.28 trillion in 2019, the Fannie Mae researchers say. On the refinance side, because of favorably low interest rates, applications could soar to $1.41 trillion. According to MBA, refinances rose 10 percent this week.
On Tuesday, April 21, NAR is releasing its sales update, which covers March transactions.
As the coronavirus and its impact on the industry unfold, RISMedia is providing resources and updates. Get the latest.
Suzanne De Vita is RISMedia’s senior online editor. Email her your real estate news ideas at sdevita@rismedia.com.
You paint a prettier picture then I would expect, I sure hope you’re right. I am not as optimistic, with the job losses happening, and the uncertainty in our future this yr, it is more likely that we will see price drops, and a 25 – 35% drop in sales this yr. And again I sure hope I AM WRONG.
As a REALTOR for over 45+years, Homes are here to stay, there will always be people that need to buy and need to sell. Realtors just need to get a buyer/seller to a meeting of the minds in price/value. Carol Baker, LevitanRealty.com – FL 239-594-5555 or RE/MAX Suburban – IL 847-259-0202.
It should be expected that losing almost three months, by the time this crisis is controllable, would result in a reduction of sales. I would never have assumed that any amount of excitement would replace lost time. It never really did before as we recovered from other situations. Of course we remember those recoveries as increased business due to pent up demand, but usually never completely replacing the lost time. This also may be another first and that is the entire crisis falling within the same calendar year. Many other issues carried thru parts of years spreading the damage. At least the glimmer of hope resides in the comments that the purchase market is expected to rebound. That should give everyone, sellers, buyers and realtors the confidence they need to be a positive part of the recovery. Frank Reali Broker, BHGRE Safari Realty, Staten Island, NY
Since residing in high density buildings is a major contributing factor to the spread of coronavirus, is it logical to anticipate that people living in high density apartment buildings will be purchasing individual houses in the suburbs?
More complete nonsense from fools. Why do people insist on making outrageous predictions when they don’t have enough information? Hey folks; nobody knows what’s going to happen tomorrow. This is unprecedented. The government has not determined what monetary action they are going to take yet. Everyone needs to shut up and accept the fact that we don’t know the future.
As usual this is way off. In my market I expect to see 40% drop at a minimum. Being a 40yr veteran I can’t recall any of these forecast groups being right.
i think sellers are still listing and I for one, have buyers who are still looking and will be ready to buy when they see the right house. We are doing things a little differently, having buyers look at virtual tours, all of the photographs, and then drive by to make sure they are happy with the neighborhood. Then I set the appointment. We wear masks, wear gloves, take off shoes, and we don’t touch anything without a glove.
When we leave the house, we take off the gloves, inside out, and throw them in the back seat floor. Very shortly, i believe our market will start to boom, and instead of instilling doom and gloom, why not say some positive things to help people feel more optimistic and want to continue buying and selling and fulfilling the American Dream. Judie Seitz, CRS, Comey & Shepherd Realtors, Greater Cincinnati Ohio area.
I have clicked the F on share this post now and added comments above. It is not posting to my page. What am I doing wrong? Nancy Beveridge 603-765-2663
Good info. Thank you.
Steve Spencer Realtor Century 21
Evans GA.
I believe the analysis is much too broad based. Online activity is through the roof which generally points to pent up demand. That said, we are all somewhat confined and glued to our TV’s and computers, which means you need to temper that statement a bit. Interest in Connecticut properties of all shapes and sizes, north of New Haven, are getting significant interest from NY and NJ buyers born from the pandemic and looking for a primary or secondary home off the grid. My point is that there will certainly be areas that are significantly impacted by this pandemic; most notably major metropolitan areas. However, parts of Connecticut especially north of New Haven and other less developed parts of our country are poised to do quite well. Just my perspective after fielding numerous calls the past three weeks from buyers looking to relocate.
Homes are always going to sell. I’ve been in the business since 1986. It may be on hold now if you are trying to sell your home and still living in it but I found that the investor market with renovated vacant homes or even just vacant homes are moving. Just last week, I listed an estate and it went into a 4 offer bidding war. Interest rates are low and buyers should be out there looking if they are still working and lots are. I think the market will drop off a little but getting as many offers as I have on the vacant properties I have listed, there are smart buyers out there taking advantage of the low interest rates.
Jan Rutkowski, BHHS Fox & Roach Realtors, Pennington, NJ (609)462-2640