On May 4, 2020, Zillow released their experts' predictions regarding the future of the US housing market as a result of COVID-19. Their thoughts are similar to those posted by Jim Klinge on March 31, 2020, in his Bubbleinfo blog post.
As seen in the table above, Zillow predicts there will be three different possible outcomes, an optimistic, a medium, and a pessimistic. They state all three situations will lead to a sales volume of about 97% of the 2019 levels by the end of 2021. So what distinguishes each scenario from one another? The "pace of recovery."
In the optimistic scenario, there will be a dip in home prices in quarters two and three of 2020, as we have already slightly begun to see, with a "robust recovery." In this situation, the market will experience a V-shaped recovery, known as a "snapback," indicating a speedy rebound in prices and sales volume. In 2003, Hong Kong experienced this after the SARS outbreak. However, this is the least likely scenario for the US housing market. SARS and COVID-19 have already proven to have different effects. Experts have made it clear the world is not going to snap back to the way things used to be pre-coronavirus, but instead many of our "normal" activities and procedures will be vastly different. As a result, we are forced to accept that despite the optimistic scenario that was seen for Hong Kong in 2003, we will most likely not experience this scenario.
The medium scenario includes a check mark shaped recovery, indicating a steep fall in prices and sales in quarters two and three with a gradual recovery throughout the end of 2020 and 2021. As the most likely scenario for the US housing market, we will continue to see a decline in sales volume and prices this year, but we will likely start climbing slowly but surely to the baseline levels of quarter four 2019.
The pessimistic scenario still gets us to about 97% of the sales volume of the end of 2019 by the end of 2021, however the recovery would be significantly slower forming a wide U shape. In this scenario, there will be continued weakness in 2021, indicated by the longer bottom, and a very gradual pace of improvement. Home prices will see a much more significant drop than any other scenario.
Zillow's assumption of a 50% decline in sales has already been validated by data, while also offering some hopeful progress. While nationwide sales have already hit a low point of 50%, afterward it increased to only 27.5% below the beginning of the year sales.