The overall strength of the real estate market as we entered into the COVID-19 pandemic will offset recession-driven damage in 2020 and help stabilize home prices for the next year.
That’s according to a new report released by global analytics firm CoreLogic, which forecasts home prices will rise 0.5% from March 2020 to March 2021. While the increase is small, it’s significant. Unlike the last recession, which was fueled by the foreclosure crisis and housing market downturn, this time most homeowners won’t need to worry about their home values dropping along with the stock market.
“The CoreLogic U.S. Home Price Index is predicted to remain largely unchanged over the next year or so after a long uninterrupted run of appreciation,” said CoreLogic President and CEO Frank Martell.
That’s not to say the housing market hasn’t been affected by the novel coronavirus outbreak. CoreLogic’s report shows that closed home sales fell 26% in the last two weeks of March as the economy entered into a recession. “Rapid decline of purchase activity starting in the middle of March can be seen in other CoreLogic data and is consistent with our HPI forecast of slowing price growth in April,” said CoreLogic Chief Economist Dr. Frank Nothaft in a press release. “First quarter GDP results showed that the country entered a recession in March. Unemployment claims have reached record highs and this economic environment will further impact the housing market into the foreseeable future.”
According to the company’s analysis of housing values in the country’s 50 largest metropolitan areas based on housing stock, 36% of metropolitan areas had an overvalued housing market in March, while 28% were undervalued and 36% were at value.
In Chicago, which is considered a normal market when it comes to home values, prices are projected to rise 1.7% by March 2021, significantly higher than the national average.
Ironically, lack of inventory and high demand — including strong engagement from millennial homebuyers, who have been fueling home price growth in recent years — are offering a cushion of protection and may even provide the foundation for a rebound.
“Although the economic fallout from lockdown orders, put in place to fight the spread of COVID-19, will be profound, the basic supports for a rebound in home purchase activity remain in place,” said Martell. “Once the shelter-in-place policies are lifted, we expect millennials, who submitted home-purchase applications well into the crisis, to lead the way back to a positive, purchase-driven housing cycle.”