Veros: Home Price Appreciation Rates Set to Stall

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Veros Real Estate Solutions says its VeroFORECAST data for the first quarter projects an average 1.9% appreciation rate for residential real estate in the nation’s largest 100 housing markets through the first quarter of 2021.

This forecast has been 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,” says 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. The fundamental economic principles under which housing has been operating in recent years are solid. Real estate prices will be poised to recover when we see employment return across the nation.”

Veros acknowledges that the country may 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. 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.

“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,” says Eric Fox, Veros’ vice president of statistical and economic modeling. “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.”

The 10 markets forecast to increase the most between Q1 2020 and Q1 2021 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.

For the next 12 months, Veros expect 10% of all markets to depreciate. (This is sharply up from only 1% of all markets expected to depreciate annually just one quarter ago.) The average annual forecast depreciation of the bottom 10 is -1.3%.

Housing supply is a key discriminator between the top and bottom forecast market performance. Population trends are also a variable responsible for the performance of the bottom forecast markets. Namely, either slow population growth or population declines are contributing to low demand in these areas. Many of the cities identified in the least-performing ten markets are in very slow-growth metros.

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