Will the U.S. Real Estate Market Crash in 2020, Due to Economic Uncertainty?

Highlights from this housing report:

  • Will the real estate market crash in 2020 due to a shaky economy?
  • That’s one of the most common questions we received last week.
  • At this point, it seems unlikely that the housing market will “crash.”
  • But home prices might drop in some cities, especially the pricey ones.

From stock market investors to home buyers, it seems everyone has the jitters lately. And that’s understandable. Turn on the news, any news, and you would think the world was ending. (Spoiler alert: it’s not.)

The coronavirus has shaken the global economy, causing concerns among international corporations and small businesses alike. And those concerns are warranted.

The biggest problem in the economy right now is restricted movement. Many countries have imposed travel restrictions and “lockdown” protocols to reduce the spread of the virus. That hurts all kinds of businesses, from restaurants to airlines to hotels — even your local coffee shop.

The bottom line is that we will get through this, as we have in the past. But there will certainly be a short-term impact on the world’s economies. How much of an impact is anyone’s guess. It’s just too soon to say.

But let’s turn our attention back to the housing market for a moment. Let’s tackle the big question…

Will the Real Estate Market Crash in 2020?

Will the U.S. real estate market crash in 2020, due to economic concerns spawned by the coronavirus?

That’s a hard question to answer at the moment, mainly because we don’t know how long the situation will drag on. That’s the key factor here — the duration of the crisis. But as of right now, it seems unlikely that we will see a nationwide housing crash on the scale of the one we saw in 2008.

What’s more likely is that the real estate market will slow down, as fewer and fewer home buyers venture out to buy houses. This in turn could lead to slower home-price growth going forward, or even a decline in some areas.

The housing markets most susceptible to falling home values are the ones with the highest prices relative to median income. Markets like those in the San Francisco Bay Area, where only a small percentage of local residents can afford to buy a house, are more likely to see a downturn compared to the more affordable markets with a higher percentage of capable buyers.

According to George Ratiu, a senior economist at Realtor.com, an economic slowdown could also result in fewer home sales nationwide and a buildup of inventory. In a recent Bloomberg article, Ratiu said:

“If there is a marked economic slowdown accompanied by job losses, that would put a lot of pressure on homeowners. We would see a change in the inventory situation. Instead of a severe shortage, you would start to see inventory ramp up as people get interested in offloading.”

But the fact is, we’re not there yet. All of these outlooks are speculative at this point. Possible, but speculative. We haven’t reached that turning point, at least not on a national scale. And we might not reach that point. A lot depends on how quickly health officials can get their arms around this virus.

House Values Continue to Climb in Most U.S. Cities

According to the latest data, home prices in most U.S. cities are still rising as we approach spring of 2020. And at least one forecast sees that trend continuing over the coming months.

As of March 16, the real estate information company Zillow had the following forecast posted on its website:

“The median home value in the United States is $245,193. United States home values have gone up 3.8% over the past year and Zillow predicts they will rise 4.1% within the next year.”

Of course, these predictions are based on current trends and conditions. And those conditions are changing as we speak. It’s certainly a fluid situation. But as of right now, the economists and analysts at Zillow clearly do not see a U.S. real estate market crash occurring in 2020.

Things Have Changed Since the Last Crash

The truth is it would take a lot more than a short-term economic slowdown to cause a nationwide real estate market crash in the U.S. It would take massive job losses and income reduction, on a national scale. And that’s just not happening right now.

The U.S. housing market is not nearly as “fragile” as it was during the last crash. In the early 2000s, reckless lending practices created a ticking time bomb of unaffordable mortgage loans. People who had no business taking on a mortgage loan were qualifying with ease, thanks in part to “creative financing” products like the payment-option ARM loan.

Say what you will about government regulation and oversight, but it has certainly created a more stable mortgage industry — and thus a sturdier housing market. Mortgage default and foreclosure rates today are significantly lower than they were ten or twelve years ago.

Mortgage borrowers today are also better qualified (on average) than they were during the last housing boom-and-bust cycle. There’s more income verification during the loan process today than in the past.

Containment and ‘Lockdown’ Measures Could Reduce Home Sales, Prices

As of right now, the U.S. has not implemented the kinds of strict containment measures we are seeing in some European and Asian countries.

Many events have been cancelled, from Broadway shows to the Boston Marathon. Large gatherings are prohibited. And an international travel ban has been put into place. But so far, the free movement of individual citizens within the U.S. remains unaffected for the most part.

If that changes — if government officials implement a kind of lockdown to restrict movement — the housing market could take a bigger hit. People would be unable to go out and look at homes. Sales would decline. This reduction in demand would slow home prices and possibly reverse them, in some areas.

At present, this is a regional fight. Some parts of the U.S. have few or no documented cases of the coronavirus right now, while other states have many. And in those affected states, the highest concentration of cases are typically centered around major population centers (but not so much the outskirts).

So if we do see a kind of lockdown implemented in the U.S., it would likely apply to select areas such as New York City — not the country as a whole.

A broader lockdown scenario would certainly slow homes sales and probably chip away at house prices in some markets. But it probably wouldn’t cause a nationwide housing market crash in 2020, unless it dragged on for many months.

Here’s something worth remembering: A virus cannot cause home prices to drop, or cause the real estate market to crash. Not directly anyway. Those things occur due to changes in supply and demand, and consumer confidence. So a lot depends on how people react to the situation.

Disclaimer: This story contains forecasts provided from third parties not associated with the Home Buying Institute. They are the equivalent of an educated guess and should be treated as such. The publisher makes no claims or assertions about future economic conditions.