There is a large challenge that is head to head with the housing industry, which is understanding the impact COVID-19 has on the current home values. Some buyers are hoping for major price reductions because the health crisis is straining the economy.
The price of any item, however, is determined by supply and demand, which is how many items are available in relation to how many consumers want to buy that item.
In residential real estate, the measurement used to decipher that ratio is called months supply of inventory. A normal market would have 6-7 months of inventory. Anything over seven months would be considered a buyers’ market, with downward pressure on prices. Anything under six months would indicate a sellers’ market, which would put upward pressure on prices.
In March 2020, the real estate market was a strong sellers market. While buyer demand has decreased rather drastically during the pandemic, the number of homes on the market has also decreased. The recently released Existing Home Sales Report from the National Association of Realtors (NAR) Noticed that the four major regions (West, Midwest, South, and Northeast) witnessed a dip in housing sales, Northeast being the hardest hit.
But, this should not be a red flag to us, John Burns Real Estate Consulting, recently reported:
“Historical analysis showed us that pandemics are usually V-shaped (sharp recessions that recover quickly enough to provide little damage to home prices).”
What are the experts saying?
Here is a look at what some industry experts recently reported on the matter:
Ivy Zelman, President, Zelman & Associates
“Supported by our analysis of home price dynamics through cycles and other periods of economic and housing disruption, we expect home price appreciation to decelerate from current levels in 2020, though easily remain in positive territory year over year given the beneficial factors of record-low inventories & a historically-low interest rate environment.”
“The fiscal stimulus provided by the CARES Act will mute the impact that the economic shock has on house prices. Additionally, forbearance and foreclosure mitigation programs will limit the fire sale contagion effect on house prices. We forecast house prices to fall 0.5 percentage points over the next four quarters. 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.”
Mark Fleming, Chief Economist, First American
“The housing supply remains at historically low levels, so house price growth is likely to slow, but it’s unlikely to go negative.”
Bottom Line
The economy may be placed on a hiatus for now, but home prices are remaining steady during COVID-19.
Topics: Home Valuation, Home Value, Home Values, COVID-19
