U.S. Housing Market Could Crash to 29-Year Lows
The Covid19 pandemic has sent shockwaves around the world, especially to financial and commodity markets. The U.S. housing market is not exempt from these shockwaves and is expected to crash to a 29 year low as home sales contract to levels of 1991. This contraction is set to deal a heavy blow to the U.S housing market.
Housing Market Expected to Drop by 35%
Preliminary analysis expect spring home sales to drop by 35%. The housing market will not remain at such a low level for a long time, anyone who has studied economic trends knows that troughs and peaks form a regular pattern but the real question is how much will the current recession that is still unfolding damage the recovery phase of the housing market?
In light of the current economic situation, the U.S. housing market report that is set to come out in April is expected to be dismal. Capital Economists carried out an analysis of the impact of Covid19 on the market and their data research suggests that the market should prepare for a 35% drop in home sales.
The data from the last quarter (Q4) of 2019 shows that the sales of existing and new homes averaged approximately $6 million. Data suggests that this figure for the spring can drop down to an estimated $4 million, which would be the lowest since 1991.
The graph above shows the U.S housing market data and trend. The data in the graph ends at the beginning of 2020, preliminary data available in the market suggests that the graph is on a downward slope and close to hitting 1991 levels.
The flash survey from the National Association of Realtors (PDF) shows the reason why the Capital Economists report is so grim about the future of the U.S. housing market. Around 50% of realtors have reported a decline in the interest of buyers due to the Covdi19 pandemic, especially the states with a high number of Covid19 clusters that have reported a significant decline in buyer demand and interest.
Potential buyers are not putting off their decision to buy homes due to Covid19
20% realtors from the areas that are seeing the highest rise in Covid19 cases have reported already removing their homes from the market. Companies like Redfin have gone the extra step and halted open houses and restricted the showings to their potential customers, as a precautionary measure to prevent the spread of the disease.
As we mentioned above, those who study data know that troughs and peaks are a common pattern over time, so this decline is not expected to last a very long time, things will eventually get better and we know this from past trends.
But the question is, how long will it take before they start getting better?
Is There Any Hope Of Rescue Through Pent Up Demand Of Houses?
Covid19 has bamboozled the medical scientists and researchers and thus for economists to say definitively what the impact will be on the market, in the long run, will be a far-fetched statement. At this moment, no one knows for certain how long this pandemic will last and what repercussions it will have. As they say, this is still a developing story and at most the economists and data scientists can only present short term predictions. It is thus, unclear what the long term impact of the downturn caused by Covid19 is going to be.
If you look back at the graph shown above, you`ll see that leading up to 2020, the housing market in the U.S. was showing an upward positive trend. This shows that the fundamentals of the market were good prior to the pandemic. The housing market is expected to accumulate pent up demand during this intermediary period of containment of the disease.
However, if the recession hits badly and causes millions of working-class Americans to lose their jobs and retirement savings like 2008 then this will result in consumer behavior change and that may affect demand, as people will prioritize their expenditure and thus expenditure on housing will not be at the top of their list.
Prior to the Covid19 outbreak, the rate of unemployment dropped down to a 50 year low at almost 3.5%. However, in the wake of the global outbreak, many businesses have been forced to shut down to contain the virus and this is going to result in a spike in short term unemployment. It is also prudent to believe that some of the closed businesses may not be able to reopen due to losses and foreclosure, thus some of the jobs that have been lost may never come back. So we are looking at an increase in unemployment right now.
Some economists have warned that the jobless claims report may register a rise of 2 million jobless claims. Steven Mnuchin, the U.S. Treasury Secretary informed the Republic senators that the unemployment figure is expected to climb up to as much as 20%, according to the worst-case scenario simulation model.
Some buyers may be tempted to take advantage of the low mortgage rates right now and buy their dream home but it must be kept in mind that the recession has not completely hit yet, it will come and when it does, the resulting layoffs may create a completely different scenario and may put off many potential home buyers indefinitely.
Originally posted 2020-03-24 22:26:19. Republished by Blog Post Promoter