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Summer outlook: A slowing recovery may wait in the wings

While housing has thus far seen a strong recovery, experts say prices may actually fall later this year. Factors such as unemployment and foreclosures could also weigh down the market.

“The road to recovery.”

“Beginning to return.”

“Sales are bouncing back.”

Those are just a few of the upbeat takes economic experts recently shared with Inman when asked how the housing market is shaping up at the beginning of the summer — a normally busy buying season that this year is filled with uncertainty thanks to the coronavirus pandemic.

The pandemic has exacted a massive toll on the economy, but as those quotes above indicate, the housing market has so far not fallen off a cliff. And while things aren’t completely back to normal, the consensus among housing-focused economists who spoke with Inman for this multi-part series is that looking back over the last few months things have been heading in the right direction.

However, looking forward into the rest of the summer and fall, there may be cause to re-cork the champaign: Multiple experts told Inman in recent days that the full economic impacts of the pandemic may not yet have reached the real estate industry yet, and there may be some sluggishness on the horizon. And while another Great Recession now appears unlikely, at least as it pertains to housing, a full return to normal also appears to be a long way off.

Here are some of the key trends that may play out over the coming months:

Probably the biggest news here is that multiple forecasts currently suggest prices will go down in the coming months. A report last week from Zillow is among the most recent of those projections and indicated that prices could come down by 1.8 percent by October compared to this year’s high point in February.

“The year-over-year change is expected to bottom out at -0.7 percent,” the report stated, adding that there may also be a “slow recovery until about spring 2021.”

Skylar Olsen, a senior economist at Zillow, told Inman that some earlier projections actually foresaw prices dropping by as much as 3 percent. However, the updated thinking is that pent up demand will prevent such a significant drop, at least in the short term.

“It does make me optimistic,” she said.

On the other hand, Olsen said that if more new listings don’t hit the market and “seller confidence doesn’t join buyer confidence, then this recovery will absolutely slow.” And either way, years of continuous price growth appear to be over.

“We expect prices to be at their lowest point in October this year,” she added.

Olsen also doesn’t expect the impacts to be distributed evenly. Though many agents have over the last month described surging consumer interest in homes at the more affordable end of the spectrum, Olsen said that slice of the market will be vulnerable in the coming months. That’s because consumers looking at more affordable price points are also the most likely to be impacted by things like unemployment.

“Nothing is going to be even about this recovery,” she said. “Lower price point housing is going to have a harder time.”

Either way, though, CoreLogic has also predicted a coming price drop. In early June, the company published a report noting that prices had thus far held steady, but stating that “a decline is looming.”

“Looking ahead,” the report explains, “the CoreLogic [Home Price Index] Forecast predicts an annual price decline of 1.3 percent from April 2020 to April 2021.”

CoreLogic’s Home Price Index suggests prices could fall by 1.3 percent year-over-year by April of 2021. Credit: CoreLogic

However, while a consensus appears to be growing that modest price declines are in the offing, not everyone is convinced. Matthew Gardner, the chief economist at Windermere, is familiar with the recent reports from Zillow and CoreLogic but told Inman “I’m not seeing that.”

“I think we could potentially eek out a very modest gain,” he argued.

Gardner explained that since World War II, the U.S. housing market has only seen price drops on an annualized basis twice. But the current crisis doesn’t resemble those prior events, the most recent of which was the Great Recession. That’s in part because lending practices are different now, and also because the supply and demand equation is better poised to sustain price growth.

“We are absolutely not oversupplied as we were before,” Gardner added.

But whatever happens, Olsen said it probably won’t fundamentally change the equation for most consumers — including would-be buyers who may have been hoping for relief after years of appreciation priced them out of the market.

“It could be the case that home price drops are significant,” Olsen said. “But for buyers I think something really important to consider is if you’re buying a home when prices are starting to go soft it’s so hard to time the market. The advice I give them is don’t time the market. Be constantly looking and when you find your match, make the move.”

Though modest price declines may be on the horizon, the good news for consumers of all stripes is that everyone who spoke to Inman believes low mortgages are here to stay through the coming months and beyond.

“I think it’s going to depend on how the economy evolves,” Hale said. “But our expectation is we’ll see low, maybe not record low, but quite low rates for a few years.”

Olsen agreed, saying “I think they’re going to stay pretty low for a long time now.”

And Gardner added that he “doesn’t see us seeing 4 percent mortgages until 2022.”

Moreover, the impacts of low rates are already being felt; Taylor Marr, a lead economist and data scientist at Redfin, told Inman that the low rates are “helping accelerate buyers coming back into the market” and “that’s likely to continue for most of the summer.”

“It’s unlikely that mortgage rates are going to shoot up very quickly,” he added.

Hale offered a similar perspective, saying that the mortgage rates appear to be fueling demand beyond what might have existed purely as a result of the months-long economic shutdown.

Another trend that is already playing out, and which will likely continue into the coming months, is a shift among buyers toward bigger housing types, as well as toward less urban areas.

Danielle Hale, chief economist at, told Inman that these trends were already happening prior to the pandemic because millennials — the oldest of whom are now in their late 30s — make up the largest homebuying demographic and are also now starting families. But the pandemic is likely to accelerate the trend.

“I think it was going to happen either way,” she said, “but I do think it’s taking on a new importance now that the pandemic has happened.”

It’s an open question right now which areas might benefit. Thanks to an uptick in remote working, it’s theoretically possible that large numbers of people in big expensive cities like New York and San Francisco could relocate to entirely different states or cities.

But many experts envision a more modest shift.

“I think it will fall a little bit more in the camp of the suburbs verses the further out areas,” Marr said. “People like to keep options open for work.”

In Marr’s view, workers in San Francisco, for example, may be willing to move to Sacramento — about an hour and a half a away — because its more affordable but still close enough to take advantage of the Bay Area’s job market.

“What if you want to change jobs?” Marr wondered. “By moving to a place like Sacramento you’re still within reach.”

Gardner also envisions people moving, though he expressed some skepticism about the long-term viability of a massive move toward remote working. He said it has been attempted before but both employers and workers never fully embraced it.

“Workers missed the symbiosis of conversations around the water cooler,” he said.

In any case, whatever the shift ends up being, it already appears to be in its earliest stages.

“We’ve been trying to track how buyers are reacting to flexible work,” Marr said. “We immediately saw a big surge in search activity away from the largest metros.”

While it’s clear that the housing market has been fairly resilient so far, many of the industry professionals who spoke with Inman for this story overall advised caution as summer begins. Chris Heller, the chief real estate officer for startup OJO Labs, was among them, saying that “on a macro level we haven’t experienced the true economic impact of what has and is happening.”

Heller thinks the full economic impact of the crisis will take between six and 12 months to fully play out in the real estate market.

“We’re going to see a very active summer,” Heller said. “The pent up demand from 60 to 90 days of dramatically reduced activity when it starts to hit, which it is now, feels like a tsunami. But like a tsunami, it doesn’t last for a prolonged period of time. Summer will be active and then things will settle down.”

Marr also expects an active summer. But he told Inman that despite an ongoing recovery there “are a few different mixed signals that could play out over the next few months.” One of the biggest of those signals is unemployment, and the prospect of layoffs becoming permanent rather than temporary.

“That’s the biggest concern,” he said, “that that will slowly drag on housing demand.”

Hale agreed that if unemployment remains high the consequences for housing will grow.

“Even though the unemployment rate is well above record levels, in many ways workers aren’t feeling the pain in their pocket books,” Hale explained. “The longer it takes the jobs market to go back to a normal environment — and I don’t think anyone has a good answer for how long that’s going to take — the more likely we are to see disruption in housing demand.”

Another related caveat is the prospect of foreclosures. During the last recession, a multitude of homeowners found themselves underwater on their mortgages and also out of a job. Eventually, according to Olsen, “what caused prices to come tumbling down was absolutely foreclosures.”

“It was a flood of distressed sales” she added.

Everyone who spoke to Inman was clear that this economic downturn is different. Homeowners tend to have more equity in their homes now, for one thing, and the crisis isn’t linked to risky lending practices as it was a decade ago. Additionally, a number of forbearance programs exist to give homeowners more time to pay if they’ve been hit by hard times.

“There is reason to believe that we could avoid widespread delinquencies and foreclosures because of the health of homeowners before this crisis,” Olsen said.

Still, there is some cause for concern. In early June, for example, a trio of CoreLogic analysts argued that unemployment could actually peak at the end of the year, and that the virus’ impacts “could lead to significantly higher mortgage default in the next several years.”

Gardner also said that even if homeowners have more flexibility with their payments, the larger economic system still has to keep money flowing.

“Even though you or I as a homeowner may legally not pay our mortgage,” he explained, “the company we would send our check to is still on the hook to make that payment to the bond holder.”

Gardner does not anticipate an entirely calamitous outcome stemming from these factors, but they do offer something of a reality check and show that there are still open questions about the overall health of the housing market.

The takeaway, then, is that as the market goes into the summer it’s experiencing something of a mixed bag. As the previous piece in this series showed, the recovery so far has been strong, even if the future is still somewhat uncertain.

However, despite all of the things that could trip up the market — unemployment, foreclosures, another virus outbreak, etc. — the experts at least don’t see a complete apocalypse on the horizon.

“I’m not going to say the housing market has gotten off completely free in this recession,” Hale said. But I do think it’s much better positioned and it’s not going to be the trigger for a recession this time the way it was last time.”

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By: JIM DALRYMPLE II | Staff Writer,

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