July 7, 2020
CoreLogic, Irvine, Calif., said home prices rose strongly in May, but warned that the effects of the coronavirus and subsequent economic downturn could send home price tumbling over the summer.
The CoreLogic Market Risk Indicator predicts 125 metro areas have at least a 75% probability of price decline by May 2021; additionally, the HPI Forecast shows U.S. index could drop by 6.6% between now and May 2021, with all states expected to experience a decline
The report noted strong home purchase demand in the first quarter, coupled with tightening supply, helped prop up home prices through the coronavirus crisis. However, CoreLogic Chief Economist Frank Nothaft said the anticipated impacts of the recession are beginning to appear across the housing market.
Nothaft noted unlike the Great Recession, the current economic downturn is not driven by the housing market, which continues to post gains in many parts of the country; while activity up until now suggests the housing market will eventually bounce back, the forecasted decline in home prices will largely be due to elevated unemployment rates. This prediction is exacerbated by the recent spike in COVID-19 cases across the country.
“Pending sales and home-purchase loan applications are higher than in June of last year and reflect the buying activity of millennials,” Nothaft said. “By the end of summer, buying will slacken and we expect home prices will show declines in metro areas that have been especially hard hit by the recession.”
While national home prices remained steady, the pandemic has created a volatile landscape for local housing markets. For example, single-family home prices in Philadelphia experienced an annual gain of 7.7% in May, compared to San Francisco’s 1.1%. The CoreLogic Market Risk Indicator, a monthly update of the overall health of housing markets across the country, predicts a very high probability (above 60%) of a decline in home prices over the next 12 months in Prescott, Ariz.; Lake Havasu, Ariz.; Daphne-Fairhope-Foley, Ala.; and Naples and Crestview-Fort Walton Beach, Fla.
CoreLogic said states such as Arizona and Florida faced elevated COVID-19 cases and the subsequent collapse of the spring and summer tourism market, which curtailed home-purchase demand enough to keep a lid on home price gains over the coming year. “While harder-hit areas may also experience a slower rebound, the preservation of factors like low mortgage interest rates and a shortage of for-sale supply have already supported prices in some metros and may also encourage home price stabilization nationwide,” the report said.
A CoreLogic analysis of housing values in the country’s 100 largest metropolitan areas based on housing stock found 39% of metropolitan areas had an overvalued housing market in May, while 24% were undervalued and 37% were at value. In overvalued markets such as Las Vegas, where the local tourism economy also took a hit due to COVID-19, home prices are expected to decline by 20.1% by May 2021. Meanwhile, in San Diego—where the market conditions are considered normal—home prices are forecasted to decline just 1.3% over the next 12 months.
“Home-purchase activity, bolstered by record-low interest rates, continues to exceed expectations despite the severe recession,” said Frank Martell, president and CEO of CoreLogic. “Pent-up buyer demand was delayed from spring to summer and is reflected in the latest price data. But with elevated unemployment, purchase activity and home prices could fall off after summer.”