Freddie Mac says housing markets will deviate from their typical spring surge, with both home sales and house prices falling due to the COVID-19 pandemic.
The company’s Quarterly Forecast suggests home sales will fall 45% in the second quarter (at a seasonally adjusted annual rate). Home sales will bounce back but take a year to recover to the level reached in the first quarter of this year.
“Undoubtedly, the housing market is facing its greatest challenge in over a decade as our nation weathers this unprecedented economic event,” says Sam Khater, Freddie Mac’s chief economist.
“Although the uncertainty of the crisis means forecasts of economic activity are more unclear than usual, we expect that most of the economic damage from the virus will be contained to the first half of the year,” he says. “Going forward, we should see a recovery starting in the second half of 2020, though it will take some time for the economy to fully bounce back.”
The fiscal stimulus provided by the CARES Act will mute the impact that the economic shock has on house prices. Additionally, forbearance and foreclosure mitigation programs will limit the fire sale contagion effect on house prices.
Freddie Mac forecasts house prices to fall 0.5 percentage points over the next four quarters, with two forces preventing a collapse: housing markets face a large supply deficit, and population growth and pent-up household formations provide a tailwind to housing demand.
Also, the Federal Reserve has stepped in to buy mortgage-backed securities, helping to stabilize mortgage markets and bring mortgage interest rates lower. Long-term mortgage rates will remain lower over the next two years; in turn, mortgage refinance activity will resume the surge seen in the early part of the first quarter of 2020.
To read more about Freddie Mac’s Quarterly Forecast, click here.