Driven by pandemic fears, shut-downs and job losses, U.S. home prices are expected to dip between 2 and 3 percent this year, with sales falling by as much as 60 percent, according to a new forecast by Zillow.
But the roaring Bay Area home market — heedless of economic ups and downs for nearly a decade — will likely see few price retreats and discounts, analysts say. Buyers and sellers have pulled out of the Bay Area market in equal measure during the pandemic shutdowns, leaving strong demand for relatively few homes for sale.
National sales are expected to rebound gradually from a spring dip, and return to normal by the end of next year. “We’re seeing both a demand shock and a supply shock,” said Zillow senior economist Skylar Olsen. “This is absolutely a challenge for housing.”
Bay Area home prices shouldn’t see deeper discounts than the rest of the country, though, due to long-standing supply shortage. The median sale price of a single family home in seven core counties was $888,100 in February, according to the online listing site.
Local agents still report multiple offers on desirable starter homes despite the overall slowdown in business.
The housing market projections look relatively mild compared with the precipitous fall during the mortgage foreclosure crisis in 2008, which drove median home values down 30 percent across the country.
Before the outbreak, forecasts for home sales anticipated a strong year. Low inventory, a healthy economy and falling interest rates were expected to drive sales and prices up. Bay Area sales in January and February had rebounded from a tepid 2019, and agents looked forward to a banner year.
Zillow economists plotted three general scenarios, based on how much damage the pandemic could do to the national economy. In a worse-case scenario, home prices will fall as much as 4 percent and sales will lag through 2021. In the best-case scenario, prices will dip just 1 or 2 percent through the summer, then buyers and sellers will rush back into the market.
The most likely scenario has home sales returning to pre-pandemic levels at the end of next year, according to Zillow. The projections also anticipate that federal relief packages will help keep many people in their homes, Olsen said.
The forecast expects a 4.9 percent drop in gross domestic product in 2020, then rebounding with a 5.7 percent increase next year. Dramatic changes in the course of the pandemic — including a spike in new cases in the fall and winter — could change all of that.
Olsen said the real estate market is much more stable than in 2008. About 9 in 10 home mortgages today are fixed, 30-year terms, with far fewer adjustable rate mortgages that allowed less creditworthy buyers into the market.
Shelter in place restriction across the Bay Area left agents on ice for nearly three weeks in March and early April. Realtors were eventually allowed to show vacant properties, to no more than two guests at a time while obeying social distancing and wearing masks and gloves.
Bay Area health officials loosened real estate restrictions further on Monday, allowing agents to now show occupied homes as long as the residents are not present. But open houses are still banned and state and local real estate groups are encouraging agents to do virtual tours when possible.
Since Bay Area shelter in place orders were announced March 16, homes sales and listings have plummeted from the same period last year, according to MLSListings data from San Mateo, Santa Clara, Santa Cruz, San Benito and Monterey counties. The number of sales has dropped 30 percent, and listings have fallen 44 percent.
At the same time, cancelled deals have grown by 20 percent year-over-year, and homes pulled off the market have risen 70 percent, according to MLSListings data.
Matt Rubenstein, an agent with East Bay Pro in Walnut Creek, said activity has slowed and some buyers are looking for “epic deals.” But East Bay sellers have not budged, he said.
Most homes, especially within the budget of first-time home buyers, are getting multiple offers and no discounts from listing prices. “We’re still in California,” he said.