- The American real estate market could lose 4% of its value.
- Unemployment claims and layoffs are said to be a headwind.
- Demand is expected to fall from a cliff due to the coronavirus pandemic.
The US housing market is going to be one of the biggest victims of the new coronavirus pandemic, as people lose jobs and the economy crashes. The real estate bulls have already started to pull out of the market and it won’t be long before prices start to head south.
The latest readings from the S&P CoreLogic Case-Shiller index could be the last hurray on the market. The economic fallout from the COVID-19 epidemic is about to break market momentum and could cause the biggest price crash since the Great Recession.
The American real estate market had an excellent month of January
According to the Case-Shiller index, house prices in the United States rose 3.9% a year in January. The jump outpaced growth of 3.7% in December and was enough to outpace overall house value growth of 3.4% in 2019.
The housing market got off to a good start in 2020, as price growth accelerated in the main markets. Craig J. Lazzara, head of index investment strategy at S&P Dow Jones Indices, wrote (via CNBC):
As has been the case since mid-2019, after a long period of decelerating price increases, National, 10-City and 20-City composites all increased at a faster rate in January than in December. Housing prices were particularly high in the West and the South and comparatively low in the Midwest and the Northeast.
But other analysts predict that the January gain may be the latest the housing market sees as the economic fallout from the coronavirus.
Matthew Pointon of Capital Economics writes:
We expect prices to dip by about 4% by the start of 2021, after which values flatten out for the rest of the year. Housing demand will fall sharply as unemployment hits record highs and households are not allowed to buy a house due to the shutdown of much of the economy.
Pointon adds that buyers will not be ready to pay for a house, which will lower prices.
Nearly $ 1.3 trillion in value could be wiped out
According to Zillow’s data, the combined value of residential homes in the United States has increased by $ 1.1 trillion to reach $ 33.6 trillion in 2019. If home prices fall 4% until the start of 2021, as Pointon predicts, the housing market could end up losing $ 1.34 trillion in value.
The conditions for such a crash are already in preparation. The number of Americans filing for unemployment benefits peaked at 6.6 million for the week ended March 28.
These numbers are bad news for the US housing market. They are a precursor to the layoffs that the new coronavirus pandemic could bring about. The St. Louis Fed estimates that up to 47 million Americans may be unemployed. This translates into an alarming unemployment rate of 32.1%.
As a result, demand for housing is expected to fall. An estimate predicts a 35% annual drop in sales this spring as COVID-19 shakes the market.
Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com.
This article was edited by Sam Bourgi.
Last Modified: April 4, 2020, 11:02 a.m. UTC