Fannie Mae expects the U.S. housing market to enjoy price growth in 2020, but the ill effects of coronavirus could defeat its prediction.
Ominous signs have emerged in the U.S. housing market in the wake of the novel coronavirus pandemic. Demand has started crumbling, and the housing supply could take a hit on account of a steep fall in starts. Throw in the possibility of a massive jump in unemployment and the possibility of a major housing market crash rears its ugly head, but Fannie Mae thinks otherwise.
Fannie Mae predicts U.S. home prices will keep growing this year and next despite the economic impact of COVID-19. Its estimates indicate that the median price of a new home will increase to $326,000 this year from $321,000 in 2019. The growth will continue into 2021 when the median price is expected to hit $330,000.
Fannie Mae sees a similar trend playing out in existing home prices. The median price of existing homes is expected to increase from $272,000 last year to $275,000 in 2020. Next year, the firm forecasts a median price of $279,000.
But Fannie Mae’s bullishness about the U.S. housing market seems a tad surprising given that the firm sees a massive decline in demand this year. It forecasts that total home sales could drop as much as 14.7% in 2020. On the other hand, housing starts are expected to drop 9.3% in 2020.
As demand is expected to fall at a much faster pace than supply, prices should decline. So, it is best to take Fannie Mae’s housing market forecast with a pinch of salt, especially considering that the firm itself is unsure about how the coronavirus pandemic is going to affect the market.
The historically rapid decline in economic activity, the accompanying employment loss, and our limited, though improving, understanding of COVID-19 make this a particularly challenging forecast environment. The variability around this forecast is wide, and is dependent on the incidence, severity, and duration of the virus, as well as the response of the public and policy makers to new information.
U.S. home values have started coming down already. The median price of newly listed homes for the week ended March 29 declined 6% – or $21,000 – to $309,000 compared to the previous week, according to Redfin.
The median price of newly listed homes came in at $305,000 for the week ending April 10. Though that’s a slower drop than what we saw at the end of March, it becomes very clear that home price growth has lost its wheels.
The chart above clearly shows that price growth has nearly vanished. The bad news is that things could get worse as cash-strapped Americans will be wary of putting their money down on a new house.
After all, the novel coronavirus outbreak has led nearly 22 million Americans to file for initial jobless claims. Brian Coulton, the chief economist at Fitch Ratings, predicts that the unemployment rate could hit 15% this month as businesses face difficulty sustain themselves during lockdowns.
Higher unemployment and vanishing wage growth will weigh on U.S. housing demand. That’s why Fannie Mae’s prediction that the U.S. housing market will remain steady in these trying times doesn’t look sit right.
Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com.
Last modified: September 23, 2020 1:50 PM