Home Sales Expected to Fall in Q2 2020

Freddie Mac’s Quarterly Economic and Housing Forecast projects that it could take a year until the economy “gets back on its feet”—assuming COVID-19 is contained to the first half of the year. 

The forecast also said housing markets are seeing slips from their usual spring growth, and noted home sales could fall 45% during Q2 2020. Home sales could bounce back but may take a year to reach the levels attained during Q1 2020.

Freddie Mac also projects for home prices to fall 0.5 percentage points over the next year. However, the report notes two areas that will prevent the collapse of home prices. The first being the large supply deficit and the population growth and rising household formation could provide a boost to housing demand. 

The forecast says home-price growth could return to a long-term trend of 2-3% annually. 

Freddie Mac forecasts for home sales to fall from over $6 million in Q1 2020 to $3.4 million in Q2 2020. Home sales are projected to rise again in Q3 2020 to $5.3 million.

Long-term interest rates and mortgage rates are expected to remain low over the next two years, according to Freddie Mac. 

“Mortgage refinance activity resumes the surge we saw in the early part of the first quarter of 2020. With mortgage rates flat, refinance activity slows next year,” the report said. “The surge in refinance activity in 2020 and decline in 2021 mirrors a reverse pattern in home purchases. Thus, total mortgage originations remain around $2.4 trillion in 2020 and 2021.”

Zillow also expects to see a drop in home sales as new-home listings are down 27.1% annually as of April 5. This is after new-home listings on March 1 recorded an annual increase of 17.3%. New-home listings have declined by 19% since the beginning of March. 

However, Zillow also reports that the total inventory since March 1 has grown 2.5%. Inventory in Seattle is up 37.7%. 

"It is clear that many would-be home sellers are adopting a wait-and-see approach as uncertainty continues to rule. Our understanding of U.S. economic conditions is changing weekly, if not daily, and early unemployment figures are striking, so it's understandable that some are hesitant to put their home on the market," said Skylar Olsen, Senior Principal Economist at Zillow. "It is possible that this year's busy home shopping season is pushed into winter as some opt to hang back but activity continues from those who need to buy or sell for a job move or another major life event. What's not likely is that the bulk of potential home sellers and buyers simply throw up their hands and pull back from the market entirely."

Mortgage applications, though, according to the Mortgage Bankers Association (MBA), increased 7.3% for the week ending on April 10 from the prior week. 

The refinance increased 10% from the prior week and was 192% higher than the same week last year. The seasonally-adjusted purchase index fell 2% week-over-week. 

"Refinance activity has experienced a volatile four-week period but did increase 10 percent last week. Refinancing will continue to be beneficial for the many borrowers able to lower their monthly payments during this time of economic distress,” said Joel Kan, MBA's AVP of Economic and Industry Forecasting.