Reports Examine Which Housing Markets Could See Coronavirus Impact
Several new reports take a look at how—and where—the coronavirus pandemic could most affect U.S. housing markets. Below is a recap.
Veros: Sharp Decline in Home Price Appreciation Rates
Veros Real Estate Solutions, Santa Ana, Calif., said its Q1 VeroFORECAST data indicate an average projected appreciation rate for residential real estate in the nation’s largest 100 housing markets of just 1.9% through first quarter of 2021. This forecast has adjusted down sharply from previous projections due to massive unemployment and economic uncertainty across the country as a result of the global COVID-19 pandemic.
“Home price trends and forecasts certainly take a backseat to more pressing health and safety issues during this unprecedented tragedy,” said Darius Bozorgi, CEO of Veros Real Estate Solutions. “While we expect a softening of house prices in the near-term, we anticipate a rebound when the COVID-19 pandemic subsides.
Bozorgi said fundamental economic principles under which housing has been operating in recent years remain “solid. Real estate prices will be poised to recover when we see employment return across the nation,” he said.
But the report also noted the country could already be heading into a recession, although it is very different from the previous downturn that began in 2007. “At that time, artificially inflated house prices, suspect underwriting practices and unqualified buyers, as well as inflated appraisals, led to those circumstances,” the report said. “Today’s potential recession is not a result of risky lending, but rather the unprecedented, rapidly evolving impact of the COVID-19 pandemic. Therefore, a dramatic drop in house prices in the long-term is not forecast at this time, but only a more modest short-lived softening through the second quarter of 2020.”
Veros said the 10 markets forecast to increase the most over the next year are primarily located in Washington, Arizona and Idaho, with one outlier in Colorado. In the strongest markets, the defining factor is the very low housing supply, which forces prices to increase much more rapidly than in other markets. The average annual forecast appreciation of the top ten is only 5.6%, which is down from nearly 8% during last quarter’s update.
Veros expects 10% of all markets to depreciate over the next year, up sharply from only 1% of all markets predicted just one quarter ago). The average annual forecast depreciation of the bottom ten is -1.3%, led by Chicago (-2.3%).
“Right now, we see economic variables at odds across the country,” said Eric Fox, Veros Vice President of Statistical and Economic Modeling. “On one hand, we have historically low interest rates that typically stimulate demand and increased prices. On the other hand, unemployment is rising rapidly and GDP is falling quickly which normally drives house prices down. Finally, we have many people who have taken their homes off the market, reducing supply, and many buyers sitting on the sidelines temporarily, reducing demand. This reduced demand/supply scenario isn’t really pushing prices up or down. The combination of all of these factors results in mild forecast depreciation on average for the next quarter with a return to normal appreciation rates later in the year and into 2021.”
ATTOM Data Solutions: Markets Vulnerable to Coronavirus Impact Clustered in NE, Fla.
ATTOM Data Solutions, Irvine, Calif., issued a Special Report showing the Northeast with the largest concentration of the most at-risk counties, with clusters in New Jersey and Florida, while the West and Midwest have the smallest.
The report said housing markets in 14 of New Jersey’s 21 counties are among the 50 most vulnerable in the country to the economic impact of the coronavirus. The top 50 also include four in New York, three in Connecticut and 10 from Florida, but only one in California, none in other West Coast states and only one in the Southwest.
Markets are considered more or less at risk based on the percentage of housing units receiving a foreclosure notice in Q4 2019, the percent of homes underwater (LTV 100 or greater) in Q4 2019, and the percentage of local wages required to pay for major home ownership expenses.
“It’s too early to tell how much effect the coronavirus fallout will have on different housing markets around the country. But the impact is likely to be significant from region to region and county to county,” said Todd Teta, chief product officer with ATTOM Data Solutions. “As we head into the spring home buying season, the next few months will reveal how severe the impact will be.”
The report said New Jersey and Florida have 24 of the 50 most vulnerable counties from among the 483 included in the report.
Redfin: Affordable Homes, Low Exposure Could Help Some Metros Weather Storm
Meanwhile, Redfin, Seattle, said affordable East Coast and Midwest cities have the lowest overall economic risk in the 2020 recession that began in March.
The report said the one-two punch of the coronavirus and an oil price war between Saudi Arabia and Russia has “rapidly brought to reality” a possibility that seemed remote just a few months ago, but the impact in the real estate market is likely to be short-lived and much less extreme than the 2008 Great Recession.
Redfin said Rochester, N.Y., Hartford, Conn., and Raleigh, N.C., have the lowest overall economic risk in this recession, while Los Angeles, Miami and San Diego have the highest risk, based on a late March analysis by Redfin economists.
Redfin Lead Economist Taylor Marr said because the housing market was strong going into the 2020 recession, there’s currently no reason to expect a major crash in home prices. He said the driving factors for this 2020 recession are unrelated to real estate.
“The housing market came into this turmoil in a strong position, with a very low supply of homes for sale and record levels of home equity,” Marr said. “Home equity can function as a rainy day fund.
The report said high debt, high density and expensive housing make some cities more susceptible. Redfin said because the impacts on other, non-housing sectors of the economy, especially employment, are likely to be very large, some metro areas face a greater economic risk during the 2020 recession. Those that are hit the hardest overall are also likely to be more at risk of a real estate downturn.
“Some cities have factors that make them more susceptible to losing their footing and are likely to be hard hit,” Marr said. “Amidst rapidly rising layoffs, it will be especially difficult to sell a home in these markets, and yet buyers will likely find limited options as sellers delay listing, leaving the housing market in a standstill. federal support will help cushion the fall, but in these areas it will take significantly longer to recover.”
Redfin said cities most likely to face economic risk tend to be those with high home prices, high levels of personal debt, and large numbers of people employed in the hospitality industry, which applies to most of the big cities in the West. San Jose (48.4%) is the only metro area in the West with a recession risk score below 50%. The metro area with the highest risk of economic damage during this coronavirus recession is Los Angeles, with an overall score of 77.6%, followed by Miami (76.8%) and San Diego (75.2%). The report can be found at https://www.redfin.com/blog/coronavirus-2020-recession-risk-by-market.