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Zillow’s housing market projections: Home sales will fall 60%, prices will dip 2-3%

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(Zillow Photo)

Real estate may feel the effect of COVID-19 until the end of 2021 — and possibly even longer.

Zillow Group published its latest housing market projections Monday, outlining three scenarios for home prices and sales over the next year-and-a-half.

Using a baseline prediction that GDP will decrease 4.9% in the U.S. this year, and go up 5.7% next year, Zillow estimates a 2-to-3% drop in prices through the end of 2020 compared to Q4 2019 levels, with normalcy returning by Q3 2021. It also projects as much as a 60% decline in home sales this quarter measured from the end of 2019. Sales volume will bounce back by the end of 2021.

The company also laid out two other estimates — optimistic and pessimistic — based on varying scenarios related to how long the pandemic lasts and the country’s economic recovery. It believes the pessimistic option is more likely than optimistic.

(Zillow Charts; click to enlarge)

Zillow used a mix of published and proprietary macroeconomic and housing data to calculate its projections. See the full appendix and methodology here.

Home prices fell around 30% during the financial crisis in 2007-08. It’s unclear how the COVID-19 pandemic will ultimately impact the housing market but Zillow noted that survey data shows “we should expect much more short-term disruption than longer-term.”

“Meanwhile, financial data (especially measures of implied volatility such as the VIX, policy uncertainty, mortgage rates and bond spreads) are indicating that financial risks during late March briefly approached the conditions of late 2008, but have since subsided somewhat,” Zillow wrote.

Here’s the take from Zillow CEO Rich Barton:

Real estate companies such as Zillow and Seattle-based Redfin are leaning on technology including video home tours and self-tour features amid social distancing orders across the country.

Zillow outlined its own coronavirus playbook in March, noting that it will slash expenses by 25% this year, freeze hiring across the company, cut nearly all marketing spend, and suspend home-buying through its Zillow Offers business. Redfin has also paused its own home-buying business, RedfinNow.

Home listings are down about 50% year-over-year, Redfin reported on April 23, though home-buying demand is strengthening after a dip in April.

“How the market shapes up through the rest of spring will depend heavily on unemployment and the availability of credit,” Redfin lead economist Taylor Marr said in March.

Redfin CEO Glenn Kelman said last month that with prices going down and unemployment claims going up, it may be a good time to buy. For sellers, though, Kelman said it’s best to hold off on listing if possible.

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