The U.S. housing market is going to be one of the biggest victims of the novel coronavirus pandemic as people lose jobs and the economy comes to a grinding halt. Housing bulls have already started pulling out of the market and it won’t be long before prices start going south.
The latest readings from the S&P CoreLogic Case-Shiller index could be the market’s last hurrah. The economic fallout of the COVID-19 outbreak is about to wreck the market’s momentum and might cause the biggest price crash since the Great Recession.
According to the Case-Shiller index, home prices in the U.S. rose 3.9% annually in January . The jump outpaced December’s growth of 3.7% and was enough to outpace 2019’s overall home value growth of 3.4%.
The housing market got off to a great start in 2020 as price growth accelerated across key markets. Craig J. Lazzara, the head of Index Investment Strategy at S&P Dow Jones Indices, wrote (via CNBC):
As has been the case since mid-2019, after a long period of decelerating price increases, the National, 10-City, and 20-City Composites all rose at a faster rate in January than they had done in December. Housing prices were particularly strong in the West and South, and comparatively weak in the Midwest and Northeast.
But other analysts predict that January’s gain may be the last one that the housing market sees as the economic fallout of coronavirus takes hold.
We expect a peak-to-trough fall in prices of around 4% by early 2021, with values then flattening out for the rest of the year. Housing demand will see a sharp decline as unemployment hits record highs, and households are prevented from buying a home due to the shut down of large parts of the economy.
Pointon goes on to add that buyers won’t be willing to pay up for a house and that will lead to lower pricing.
According to data from Zillow , the combined value of residential houses in the U.S. increased $1.1 trillion to $33.6 trillion in 2019. If home prices drop 4% through early 2021 as Pointon estimates, the housing market could end up losing $1.34 trillion of its value.
The conditions for such a crash are already in the making. The number of Americans filing for unemployment benefits spiked to a record-shattering 6.6 million for the week ended March 28.
These numbers are bad news for the U.S. housing market. They are a precursor to the lay-offs that the novel coronavirus pandemic could bring. The St. Louis Fed estimates that as many as 47 million Americans could be out of a job. This translates into an alarming unemployment rate of 32.1%.
As a result, the demand for housing is expected to fall. One estimate predicts a 35% annual drop in sales this spring as COVID-19 rattles the market.