The Market: C.A.R. currently forecasts home sales to decline in single high digits in 2020

Many people fear the stock market volatility from the pandemic is going to cause another recession.

Given the recent hit to financial markets, the decline in consumer spending, and the rise in new unemployment insurance claims, C.A.R. has revised its forecast lower for the economy generally and the state’s housing market specifically. C.A.R. is forecasting that the benefit of lower interest rates will be outweighed by deteriorating consumer confidence, the slowdown in economic activity and projected increase in unemployment. As a result, C.A.R. currently expects home sales to be down in the high single digits in 2020 compared with the original forecast from the winter of 2019, which called for a modest increase in closed sales this year. The drop is expected to be steepest in the second quarter. This forecast is contingent on how long it takes for the virus to run its course and public life to return to normal. C.A.R. has developed several scenarios for the impact of the coronavirus on the market with the drop in sales and prices dependent of the length of the recession. At present, it is simply too soon to tell the depth and duration of the current cycle.

California REALTORS®’ attitudes about the pandemic and its impact on real estate have deteriorated significantly within the last week. C.A.R.’s second weekly flash poll of members found that 78 percent of REALTORS® expect home sales to be negatively impacted, up from 53 percent last week.

Even iBuyers are being impacted by the coronavirus: Opendoor, Zillow and Redfin have temporarily suspended their home buying programs. For analysis of how the housing market has reacted to past pandemics, see this literature review from Zillow.

Meanwhile, although California property taxes are still due on April 10, measures have been put into place to provide financial relief for homeowners. The Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac, is providing payment forbearance to borrowers for up to 12 months, and last Wednesday the U.S. Department of Housing and Urban Development (HUD) suspended foreclosures and evictions for at least 60 days. Yesterday, FHFA also directed Fannie Mae and Freddie Mac to provide alternative flexibilities to satisfy appraisal requirements and employment verification requirements through May 17, 2020.

Many people fear the stock market volatility from the pandemic is going to cause another recession.

Whether or not that happens, it’s important to remember one very important thing:

A recession does not equal a housing crisis or “crash” like we saw in 2008.

A recession doesn’t even mean that home prices will depreciate. If you look at the above graph, you’ll see that in the five most recent recessions, only two of them saw values decline.

While we may not know what the future holds, if you are pausing on buying or selling a home because you think a recession will cause another housing crisis…they’re not the same thing, and you could be missing out on today’s record-low mortgage rates.

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