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Home Prices Resilient Amid Pandemic

06.24.2020

Despite sending unemployment skyrocketing, the COVID-19 pandemic is likely to have little impact on home prices this year, according to a Reuters poll conducted in June. Home prices are expected to outperform consumer prices with a 3.0% increase this year, according to the poll.  

This is only a slight decrease in the 3.4% rise predicted three months ago, meaning while the economy has suffered major impacts of the COVID-19 pandemic, the housing market appears remarkably immune.  

“The U.S. housing market, which was at the epicenter of the previous financial crisis that led to a global recession, is expected to remain a bright spot amid a sharp downturn as the coronavirus pandemic continues to wreak economic havoc,” Reuters reported. Reuters conducted its survey of 40 housing experts between June 9 and June 19.  

While the spring housing market did experience a dip, housing demand “is coming back in dramatic fashion,” Brad Hunter, Managing Director at RCLCO, a real estate advisory firm told Reuters.  

A majority of those surveyed—60%—said activity in the housing market will return gradually. Around one-quarter said they expect activity to rebound quickly.  

The main cause for concern in the housing market is clearly unemployment, which stands at 13.3% as of the latest data from the Department of Labor. Three-quarters of the housing experts surveyed said unemployment is the No. 1 threat to the housing market in the next year. Other experts were concerned with the lack of affordable housing supply and tight lending.  

Only a few survey respondents anticipate a decline in housing prices this year. Reuters projected the “worst-case scenario” is a 1.2% decline this year and a 1.0% decline in 2021.  

Already tight housing supply was further exacerbated by the slowdown in construction during the spring when many business operations were halted due to the COVID-19 pandemic.  

As of May, the housing market held a 5.6 months’ supply, close to but not quite meeting the 6 months’ supply that is used as a benchmark for a balanced market. 

Mortgage rates remain low, reaching a low of 3.3% this month, which may push some potential homebuyers off the sidelines, but Sal Guatieri, Senior Economist at BMO Capital Markets said in the survey, “I don’t think that will more than compensate for elevated unemployment and relatively weak consumer confidence.”  

Exactly where housing prices will land this year remains to be seen, but it is clear the market will not suffer the same fate as it did in the Great Recession. 

by Krista F. Brock (via www.themreport.com)

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