- A report by CoreLogic predicted that national home prices would decrease by 1.3% from April to April 2021.
- National home prices saw a year-over-year increase of 5.4% in April, but CoreLogic sees home prices falling on the back of a tough 12 to 18 months for the broader economy.
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According to the CoreLogic Home Price Index Report, national home prices saw a year-over-year increase of 5.4% in April — up from a 3.6% gain in April 2019. CoreLogic attributes the growth to a decrease in housing supply because of the pandemic. According to the report, the national for-sale inventory of entry-level homes plummeted by 25% on average in April.
“Tight supply and pent-up demand, particularly among millennials, provides optimism for a bounce-back in the housing market purchase activity and home prices over the medium term,” Frank Nothaft, CoreLogic’s chief economist, said.
However, the report predicted the economic fallout caused by the virus would reverse the course of home values.
“The next 12 to 18 months are going to be very tough times for the broader economy. As employment and economic activity begin to pick up, as it will surely do, we expect housing to be a driver in a national recovery,” Nothaft said.
The House Price Index has shown a year-over-year increase in every month since February 2012 and has gained 68.2% since hitting bottom in March 2011. If the predicted national annual decline of 1.3% from April to April 2021 proves true, it will be the first in over nine years.
“The very low inventory of homes for sale, coupled with homebuyers’ spur of record-low mortgage rates, will likely continue to support home price growth during the spring,” Nothaft said. “If unemployment remains elevated in early 2021, then we can expect home prices to soften. Our forecast has home prices down in 12 months across 41 states.”
CoreLogic said home prices in April were up 1.4% month over month, and it expects a 0.3% increase from April to May. However, the report predicted the US would see a yearly decline in the national home value as markets struggle to recover from the economic setback. For example, vacation spots like Cape Coral-Fort Myers and North Port-Sarasota-Bradenton in Florida, and Prescott in Arizona, are expected to see a decrease in home values over the next 12 months as vacationers stay home.
Bank of America has also predicted a drop in home values over the next year
In April, Bank of America said home prices would drop about 2% over the next year as a result of the coronavirus pandemic and that they’d hit bottom in April 2021.
Lower home prices will be a result of lower household incomes, with the typical household income expected to drop 2% lower than pre-pandemic forecasts. Before the pandemic, Bank of America had estimated that home prices would increase 4 to 5% in 2020, but now it forecasts that home prices will drop by about 2.3% before they hit a bottom in April 2021.
While both the Paycheck Protection Program and the relief package passed in late March were expected to soften the economic blow to the housing market, Bank of America predicted the lower end of the market would feel the most heat as the hospitality, travel, and energy industries grapple with the economic impacts of the outbreak.
Still, Bank of America said its home-price outlook was “tame” relative to the outlook for home sales, with a nearly 40% decline in home sales seen in coming months and no return to normal levels until the end of 2021. Pricing will be relatively protected because it doesn’t see a high foreclosure risk and considers the market pretty well-positioned, with a lean inventory available.
In-line with this latter prediction on market position, Bank of America released a subsequent report in May pointing to early data on buyer and builder confidence, and mortgage applications suggested the housing market may have already hit bottom and was starting to recover.
According to a report by the Mortgage Bankers Association, applications to purchase a home rose 6% for the week ending May 15 compared with the week prior. In addition, Bank of America reported that a survey conducted by the University of Michigan showed an uptick in the percentage of respondents who believe now is a good time to buy. There has also been an increase in builder confidence.
However, Bank of America said that while there were early signs of a turnaround, the challenges of the current economy and the uncertainty that surrounds factors like unemployment could present obstacles and derail the recovery process.