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Housing Market: What Happens Next?

Will we have a complete housing sales recovery by the end of the year?

Currently, the number of showings across the country is equal to or exceeding showings on the same date a year ago, according to the ShowingTime Index. When the ShowingTime Index started trending up in most markets in early April, it rightly predicted the strong return of written contracts that have taken place since mid-April.

During the end of March and early April, written contracts predicted a substantial decline in closed sales for late April and May. The level of closings in the period from mid-May through the end of June will be off from where they were a year ago by a smaller amount than any forecasters thought just a month ago. If the Spring surge continues for another month, July and August may be down about the same level.

What Will Prevent a Housing Recovery?

Two issues will prevent a full-scale housing sales recovery. There are nearly 40 million Americans out of work, and not all of them will be back at work soon, which means most of those will not buy a home anytime soon. Further, these are not all waiters and retail workers, as some assume. Many white-collar managerial jobs were lost and will not be quickly recovered, if at all.

This is the fifth housing recession since 1980. I’ve had a front-row seat to them all. One thing that occurred, anecdotally, in each downturn is that the high-priced segment of the housing market gets quiet for a period, even after a recession ends. This segment of the market tends to hibernate for 12 to 18 months after a recession. Yes, there are transactions, but historically not at the level before the start of a recession.

A Complete Recovery?

This means a complete recovery in housing sales might not happen this year. We’ve reviewed several economists’ forecasts, including those from NAR, Zillow, and Mortgage Bankers. Their projections for 2020 housing sales go from 4.5 percent in the rosiest prediction (MBA) to down 25 to 28 percent. While averaging these are unrealistic, it appears that housing sales units for 2020 will be down 15 to 20% for the year. The good news is that the worst is likely behind us, and the annualized level of housing sales will be better in the third and fourth quarter than it was in the second. Generally, these economists believe that full recovery will occur later in 2021.

Economists from outside of housing believe that the general economy will get hit hard in the second quarter, with GDP falling between 25 and 30 percent in the second quarter-—an unprecedented decline—while GDP will recover from growing in the double-digit ranges in the third and fourth quarters of 2020. However, none believe the loss of output from the March to June period will be made up by year-end.

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