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Why home prices should perform far better than overall economy

Neal Templin, Rate.com on

Published in Home and Consumer News

The coronavirus crisis sent stocks plummeting, but home prices should hold up better because of a housing shortage.

Three-quarters of brokers report their clients haven't lowered prices because of the economic contraction, according to an April 30 survey from the National Association of Realtors. One in five buyers had dropped out of the market, but house prices are being supported by lower interest rates, which make mortgages more affordable, said Lawrence Yun, the association's chief economist.

Realtors aren't the only ones asserting house prices won't wilt unless the economy goes into a profound funk. Moody's Analytics calculates house prices on a national basis will drop only 1% by the first quarter of 2021 and will begin creeping up later that year.

In some areas, which include Western cities like Denver, Las Vegas, Colorado Springs and Boise, and in Florida tourism destinations such as Miami, Fort Lauderdale and Orlando, home prices could drop 5% or even 10% by the end of 2021, Moody's said.

"The markets that were the most juiced prior to this will be the most vulnerable," Mark Zandi, chief economist of Moody's Analytics, said in an interview with Rate.com News.

Higher-priced homes, or "the top third of the market," will also be more hurt by the economic downturn, he says. That's because there was already a surplus of inventory in high-end homes and "prices had gotten ahead of themselves," he says.

 

To be sure, Zandi says, a lot depends on the coronavirus pandemic. He expects that the economy will begin improving in the third quarter of this year but won't really open up until a vaccine is available mid-2021. "Between now and then, it will be a slog," he says.

A lot of sellers will simply pull their homes from the market until the storm passes, Zandi says. And that will help support housing prices.

If, by contrast, the economy doesn't begin bouncing back this summer, many sellers will have little choice but to throw in the towel and sell their house at a lower price.

The Great Recession of 2007-2009 was triggered by a housing bubble, and home prices fell sharply as credit evaporated and the economy contracted.

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