Forecasts See Little Letup in Home Price Growth, Despite Coronavirus
Reports from Veros Real Estate Solutions, Santa Ana, Calif., and Fitch Ratings, New York, said home prices will continue to climb, despite the coronavirus pandemic, well through 2021.
The third quarter VeroFORECAST anticipates home price appreciation will increase sharply during the next 12 months in the 100 most-populated markets. Prices are predicted to rise by 5% by Q3 2021 compared to last quarter when the average increase was only 3.5% into 2021.
“During the next 12 months, no major metro area is forecast to show notable home price depreciation,” said Darius Bozorgi, CEO of Veros Real Estate Solutions.
Veros monitors home prices in relation to numerous economic factors, including employment trends, natural disasters, and consumer behavior. It said currently, economic indicators and geographic conditions are not consistent across the country. Many areas have experienced a rebound from earlier quarters with government stimulus and low consumer spending providing homeowners with enough money to meet mortgage obligations.
“At the onset of the coronavirus pandemic in the United States, there was a short impact on nearly all housing markets with a month or two of softening,” said Eric Fox, Veros Vice President of Statistical and Economic Modeling. “After the initial shock, consumers embraced low interest rates and home prices returned to their pre-pandemic level and continue to move upward.”
The report said five of the top-10-performing markets are predicted to rise more than 10 percent by Q3 2021. The Western United States continues to dominate the top-10-performing cities. Idaho, Washington, Arizona, Colorado and Utah comprise the entire list. The average annual forecast appreciation across the Top 10 cities is expected to be up 10%. Boise continues to be exceedingly strong with appreciation predicted to be 12.1% by Q3 2021.
The ten lowest-performing markets are more geographically dispersed. Texas, Louisiana and California each have cities that hold two spots on the list. New York City and San Francisco are both on the list of least-performing cities, although neither are forecast to depreciate overall, despite being hit hard by the coronavirus pandemic. Parts of New York City are forecast to depreciate, and Manhattan is forecast to perform the worst over the next year.
In a separate report, Fitch Ratings said the coronavirus pandemic “has yet to make a meaningful dent” in home price growth nationally while homebuyer demand is increasing in suburban areas of the country.
The report said national home price remained strong in the second quarter, though the annualized 2.5% clip is notably slower than the annualized 5.9% rate of growth during first quarter. That said, Fitch asserted home prices are more than 10% overvalued in nearly 25% of the country’s mrtros. Nevada remains the most overvalued state in the country along with Idaho and North Dakota. Among the top 50 most populated MSAs, Las Vegas and Austin are estimated to be the most overvalued regions with more than 24% overvaluation estimates.
“Homebuyers are showing increased interest in suburban neighborhoods relative to densely populated urban cities driven by the unprecedented low mortgage rates, desire for more spacious locations and heightened work from home activity,” said Fitch Senior Director Suzanne Mistretta.
Homeownership surged to 67.9% in second quarter, the highest level in well over a decade. The increase in demand coupled with a decrease in listed homes causing home prices in suburban areas to accelerate, causing inventory shortages. National months’ supply reached 3.3 months for new homes and 2.8 months for existing homes in August.
“The imbalance of supply and demand of the housing market is primarily responsible for the upward trajectory in home prices,” Mistretta noted, adding continued elevated unemployment with lessening government support, the company’s market value decline assumption will likely remain 4%-5%.
