Home sales may have slowed to a trickle, as much of the national economy shut down in the face of the coronavirus pandemic, but home prices did just the opposite.
Nationally, values rose 5.4% annually in April, a sharp increase from the 4.5% annual increase in March, according to CoreLogic. The gain in prices was driven by a record drop in the supply of homes for sale. Not only did some sellers pull their listings in April, but most of those who planned to list decided to wait.
The supply situation is especially severe at the lower end of the market, where there had been a surge in buying by millennials. The inventory of entry-level homes for sale fell 25% in April from a year ago.
"The very low inventory of homes for sale, coupled with homebuyers' spur of record-low mortgage rates, will likely continue to support home price growth during the spring," said Frank Nothaft, chief economist at CoreLogic. "If unemployment remains elevated in early 2021, then we can expect home prices to soften."
CoreLogic is now predicting that by April 2021, home values will be down nationally by 1.3%. While that doesn't sound like a lot, national price drops are rare. The last one followed the subprime mortgage crash nearly a decade ago. Before that, the nation had not seen home values drop everywhere since the Great Depression.
Prices historically lag sales, and while sales are popping back up now, they are not expected to hold their strength through the end of the year. The National Association of Realtors is forecasting an 11% drop in 2020 sales compared with 2019.
Of the nation's 50 largest metropolitan areas, 40% were overvalued in April, 18% were undervalued and 42% were at value, according to CoreLogic. A market is considered overvalued if the current home prices exceed their long-term values by more than 10%.
Las Vegas and Miami are overvalued, but their local economies rely heavily on tourism, and therefore they are seeing an outsized hit from the coronavirus. CoreLogic is predicting prices in those cities will drop 7.2% and 4.4%, respectively, by April 2021.
In contrast, Philadelphia, where early reports are that the city is seeing an influx of residents relocating from New York City, saw the largest annual jump in home prices in April, up by nearly 11%. Houston, whose economy relies primarily on the oil and gas industries, saw home prices increase by just 0.7% annually.
Despite the uncertainty ahead, and the expectation for weaker home prices in the longer term, housing is still a bright spot in an unprecedented and unpredictable economic picture.
"Tight supply and pent-up demand, particularly among millennials, provides optimism for a bounce-back in the housing market purchase activity and home prices over the medium term," said Frank Martell, president and CEO of CoreLogic. "The next 12 to 18 months are going to be very tough times for the broader economy. As employment and economic activity begin to pick up, as it will surely do, we expect housing to be a driver in a national recovery."