As Americans sit at home watching the value of their retirement funds crater, it is no surprise the spring housing market is about to crater as well.
Home sales could fall by 35% annually this spring, compared with the last quarter of 2019, according to new analysis by Capital Economics. That would mean total home sales of around 4 million annualized, the lowest since the start of 1991.
"Increasingly restrictive measures on people's movement, and an imminent surge in unemployment," are the key reasons, according to Matthew Pointon, a property economist at Capital Economics.
Real estate agents canceled scheduled open houses last weekend, and now half of all agents are reporting a drop in buyer interest, according to a survey just released by the National Association of Realtors. That percentage tripled in just a week. Fewer agents are reporting no change in the number of homes on the market due to the coronavirus outbreak, as more potential sellers decide now is not the right time to list. Some sellers are pulling their homes from the market.
"The decline in confidence related to the direction of the economy coupled with the unprecedented measures taken to combat the spread of COVID-19, including major social distancing efforts nationwide, are naturally bringing an abundance of caution among buyers and sellers," said Lawrence Yun, chief economist for the NAR in a release. "With fewer listings in what's already a housing shortage environment, home prices are likely to hold steady."
Unlike previous drops in home sales, like during the subprime mortgage crisis, this is not expected to last nearly as long. Demand for housing was especially strong before the coronavirus hit the U.S., thanks to favorable demographics and strong employment.
"Assuming a strong fiscal and monetary policy response, pent-up demand from the spring buying season will help sales recover by the end of the year," added Pointon.
Still, given the hit to household incomes, savings and confidence, he said, 2021 sales are likely to be much lower than expected, rising to about 6.1 million annualized by the end of the year, compared with his previous forecast of a rise to 6.3 million.