The U.S. housing market could crash to 29-year lows as coronavirus containment pummels home sales to levels not seen since 1991.
We already know that next month’s U.S. housing market report is going to be “absolutely brutal.”
But new analysis from Capital Economics reveals just how ugly the data could get as the coronavirus outbreak grinds large segments of the U.S. economy to a standstill.
More than just weighing on prices, coronavirus could cause home sales to plunge by a staggering 35%.
New and existing home sales averaged slightly more than 6 million annualized during the final quarter of 2019. That could slide to 4 million this spring, its lowest mark since 1991.
This week’s flash survey from the National Association of Realtors (PDF) reveals the reasons why Capital Economics is so bearish on the U.S. housing market’s 2020 prospects.
Nearly half of realtors reported that buyer interest has already declined as a result of the coronavirus, and the numbers are highest in areas with confirmed COVID-19 infections.
Twenty percent of realtors in affected areas said that sellers had already removed their homes from the market. And many companies, like Redfin, have halted open houses and placed restrictions on showings.
These trends are likely to get worse before they get better as the rate of U.S. coronavirus infections accelerates.
The good news is they will get better – eventually.
What’s still unclear is how the “coronavirus recession” will impact the housing market over the long run.
The data pointed to strength in the lead-up to the coronavirus outbreak, and housing is one segment of the U.S. economy that should accumulate “pent-up demand” during the containment period.
But a downturn – no matter how short – will inevitably alter consumer behavior to some degree. That’s especially true if the recession causes millions of Americans to lose their jobs.
The unemployment rate has ranged near 50-year lows at 3.5% in recent months, but restaurants and other services businesses across the country have been forced to shut down to help slow the spread of coronavirus. That’s going to cause unemployment to skyrocket in the short term. And some of those jobs may never come back.
Economists warn that next week’s jobless claims report could explode to 2 million. U.S. Treasury Secretary Steven Mnuchin told Republican senators that unemployment could soar as high as 20% in a worst-case pandemic scenario.
Low mortgage rates might make it a good time to purchase a home, but recession-related layoffs could eject many would-be homebuyers from the market indefinitely. And others might be more reluctant to upgrade if they feel less confident in their employment situation.