Despite the reopening of the U.S. during the COVID-19 pandemic, look for home values around the U.S. to fall in the second half of 2020 as the recession’s effect is felt, according to the May Zillow Real Estate Market Report.
“Home buyers returned to the market earlier than might have been expected given the state of the economy, finding a market starved for inventory because of seller uncertainty. This improved demand has supported home prices and appears to have given sellers a confidence boost as new listings have slowly picked up,” said Skylar Olsen, senior principal economist at Zillow. “The next question housing will face is whether this growth can continue after demand built up during housing’s brief pause in the pandemic’s early days runs its course. It’s likely housing will feel the broader economy’s downturn eventually, though to a mild degree, and home values will fall in the coming months.”
In April, home values rose 0.41% month over month. In May, that slowed to 0.35%, the biggest one-month slowdown since March 2019 and a possible indicator that the market is headed for home value declines in the coming months. The most recent forecast from Zillow’s economic research team shows an expected 1.8% drop in prices through October 2020 from the highs in February, with a slow price recovery by mid-spring in 2021. The year-over-year change is forecasted to bottom out at a decline of 0.7%.
In a positive sign for inventory, for-sale listings grew 1.5% from last month. Still, inventory is not growing at the rate typically seen during the springtime — inventory grew 4.5% from April to May 2019 — and is down 9.6% from last year as a result. Increased buyer demand is helping to keep inventory low — newly pending sales were up 28.5% month over month as of the first week of June. It’s likely buyer demand will soften in the coming months as the wave of pre-existing demand from before the pandemic dries up, especially if unemployment remains high.
