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Fannie Mae: Home sales to decline by 15% in 2020, what about property prices?

April 17, 2020 | By: Noemi | 0

Meanwhile, low interest rates are expected to keep mortgage refinancing volumes high throughout the year. At the end of last year, economists expected that 2020 would be a strong year for housing. But now thanks to the coronavirus pandemic, home sales are poised to nose dive in the months ahead.

 

new report from Fannie Mae projects that home sales will fall by nearly 15% in 2020. Driving that decline will be a downturn in existing home sales, which Fannie Mae expects will drop to an annual rate of 4.54 million units, down from 5.34 million in 2019.

Issues with both supply and demand are expected to contribute to the decline in home-buying activity. On the demand side, the rapid rise in unemployment as a result of the coronavirus pandemic and its accompanying stay-at-home orders will curtail many Americans’ ability to afford a purchase as big as a home.

Read more:America’s housing market is showing the first signs of trouble from the coronavirus pandemic

Meanwhile, home sellers are pulling their homes from the market. “On the supply side, the number of listings is falling, as those with homes to offer may either be hesitant to allow strangers to tour their home or worry that the lack of demand is placing downward pressure on the sales price they might otherwise receive,” Fannie Mae chief economist Doug Duncan said in the report.

While the housing industry was in a strong position at the start of the year, the one thing many economist agreed would curtail growth in sales was the supply of homes. In the years following the Great Recession, home-building activity did not keep pace with the creation of households, which has left a significant gap in the marketplace.

As a results, economists had expected that the low number of homes on the market would prevent buyers from finding a property to purchase that they could afford. Would-be home sellers pulling their listings may exacerbate this issue — though buyers in the market might have more luck as a result of the decrease in demand fueled by the flailing job market.

What will happen to house prices?

Sellers don’t necessarily need to worry about lower prices if they do put their home on the market, according to Fannie Mae. Fannie Mae is still projecting the median price for an existing home to rise to $275,000 in 2020 from $272,000 last year, while the median price for a new home is expected to increase to $326,000 from $321,000.

While the downturn in sales is expected to lead to a slower pace of mortgage lending for loans used to purchase homes, refinancing is expected to remain strong throughout the year thanks to the low rate environment. Fannie Mae projects there will be $1.41 trillion in refinance loans originated in 2020, up from $1.01 trillion last year.

The good news for prospective home buyers and sellers alike is that the situation in the real-estate market is expected to improve next year, according to Fannie Mae. The mortgage giant currently expects the U.S. economy and home sales both to rebound in 2021. But that rebound is contingent on the pandemic’s trajectory.

“The historically rapid decline in economic activity, the accompanying employment loss, and our limited, though improving, understanding of COVID-19 make this a particularly challenging forecast environment,” Duncan said. “The variability around this forecast is wide, and is dependent on the incidence, severity, and duration of the virus, as well as the response of the public and policy makers to new information.”

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