Housing Market Predictions

Many families were caught financially unprepared with the sudden onset of the pandemic.  What seemed foreign and far away became domestic and close to home. The World Health Organization declared a global pandemic on March 11, and President Donald Trump announced a national emergency on March 13. Shelter-in-place directives proliferated across many communities and open houses canceled. The once-promising 2020 spring home-buying season, possibly the best since before the Great Recession, was slowed to a snail’s speed. The U.S. unemployment rate spiked from a 50-year low of 3.5% in February to an 80-year high of 14.7% in April.

The speed of the housing recovery from April’s trough has been impressive. The rebound was supported by accommodative fiscal and monetary policy. The sudden loss of income triggered by the pandemic was partly muted by an income tax refund for eligible taxpayers, enhanced unemployment insurance payments for laid-off workers, and small business loans to maintain employment through the Paycheck Protection Program. The Federal Reserve took immediate steps to cut short-term interest rates to near zero and accelerated their purchases of U.S. Treasury bonds and Mortgage Backed Securities to lower long-term yields.

The record low interest rates on fixed-rate mortgages fueled the largest refinance boom since 2012 and led a snapback in home sales. By July sales were above year-ago levels. The spring home-buying season had not been extinguished but only delayed to a summertime boom. But what does next spring’s housing market have in store?

There is a heightened amount of uncertainty on the market outlook given the difficulty of forecasting how the pandemic will evolve. A reignition of COVID-19 could prompt a national shelter-in-place order and a double-dip recession. At the other end of the gamut, new medical treatments and a vaccine could put the pandemic behind us and usher in a vibrant economic recovery. Something between these two extremes is the most likely outcome, with economic growth creating millions of jobs, but with the unemployment rate remaining elevated above 7%  for most or all of 2021