The housing market ‘bottom is pretty much now’: Zillow economist

For housing, the future looks bright.

Early metrics suggest that the housing market has turned a corner from mid-April lows, and Zillow predicts a steady recovery for U.S. home sales. 

“We do expect sales to fall anywhere from 50% to 60% from those [pre-pandemic] heights. And that bottom is pretty much now,” Skylar Olsen, senior principal economist at Zillow, told Yahoo Finance.

More homeowners are putting their homes on the market for sale. New listings dropped to a low of 43.8% on April 17 before reversing course. The most recent estimates place listings down 37.7% year-over-year, according to Zillow.

“Those [new listings] absolutely fell in a very dramatic way, but we’ve since seen those numbers start to inch up slowly,” she said.

Plus, pending sales activity has started to rise after weeks of steep losses. By April 14, pending home sales dropped 38.5% year-over-year, but by April 19, the descent abated, to a 32.3% decline year-over-year.

“The pending sales do seem to confirm the magnitude of this fall. And then we’ll get into the business of steady, steady but slow recovery,” said Olsen.

A ‘checkmark’-shaped recovery

The housing market saw a sharp drop in activity during March and April, when the pandemic prompted most buyers and sellers to halt their plans. But after lockdown restrictions lift and employment rises, the market may see a burst of pent-up sales activity, said Olsen. 

“If you want to think of the general shape that home sales are taking, it’s like a checkmark,” she said. “We’re seeing a lot of homebuyers that were frustrated from the previous year’s low inventory.”

After a short burst of activity, Zillow expects a 10% increase in home sales each month once recovery begins. According to Zillow’s model, the housing market will reach February’s pre-pandemic highs in late 2021. 

Homeowners have feared another housing crash, similar to the Great Recession, when sale prices fell 30%. But today’s housing market is stronger than it was a decade ago, with high demand, stable pricing, and low interest rates. The housing market is predicted to recover faster than the rest of the economy, and prices are expected to fall only 2% to 3%, Olsen predicts. 

“Remember that was an era of excess credit [and] excess inventory, so that when we went through joblessness, a lot of it came tumbling down because of foreclosures and distressed sales. Housing is so much more resilient leading into this crisis than it was before that one,” she said.

If the U.S. economy struggles more than predicted, however, the housing market will follow, said Olsen. 

“We are absolutely experiencing what the rest of the economy is which is joblessness, income loss, lack of confidence [and] greater uncertainty,” she said.

Some areas will recover slower than others. Much of the Northeast has not yet seen a turnaround in listings and pending sales activities, while Dallas, Houston, Minneapolis and other cities that have not been hard-hit by the pandemic are performing better. 

“Right now, economic activity, housing activity included, is much more correlated with the course of the virus itself than, say, shutdown orders,” she said.

Sarah Paynter is a reporter at Yahoo Finance. Follow her on Twitter @sarahapaynter

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