“Flying W”: Uneven Housing Market Recovery Expected

The housing market will be besieged by the twin forces of shrinking supply and shrinking demand during the coronavirus pandemic, causing an uneven recovery over the next 12 months, according to a forecast released Wednesday by real estate investor Haus.

In an analysis by Haus’ chief economist, the organization expects a recovery that looks like a “flying W” – an initial sharp drop this spring, followed by a rebound in the summer, another downturn in the fall and finally a solid road to recovery by next spring.

The analysis predicts that single-family home sales and purchase mortgage originations will see the most impact.

“There is likely to be both a reduction in demand and supply,” Haus chief economist Ralph McLaughlin said. “On the demand side, we expect uncertainty over the prospects of the U.S. economy, fears over exposure to the virus during the homebuying process, and tightening of credit standards to dampen demand for homes in the short run.

“At the same time, we expect home sellers – who often are also buyers – to hold back on listing their home because concerns over their ability to sell and also purchase another home.”

The Haus forecast calls for:

  • Home sales to experience a 35 percent to 45 percent year-over-year slump over the next three months.
  • Purchase mortgage originations will take the largest hit across all of our housing market indicators, showing a 45 percent to 65 percent drop by June 2020, while refinance originations will peak around 165 percent by July.
  • We forecast single-family building permits to decline between 32 percent and 50 percent year-over-year throughout the remainder of the year.
  • The year-over-year growth in home prices will hit their low point in February 2021, with a year-over-year growth rate of between -0.2 percent and 2.5 percent.
  • In the most severe scenario, we expect home prices to fall by between 1 to 2.5 percent in the hardest hit markets in the Pacific Coast, Nevada, and Florida.

McLaughlin said national price declines aren’t expected for “three reasons: (1) home prices are what economists call `downward sticky,’ which means that when faced with taking a loss on the sale of a home or taking it off the market, home sellers will tend to the latter, and because of this, (2) supply will fall roughly in line with the fall in demand over the next 12 months, and (3) relief provided by the federal government in the form of mortgage forbearance, suspension, and other relief combined with additional unemployment support and stimulus checks will help keep financially distressed homeowners in their homes instead of having to foreclose or short sell.”