As businesses across the United States have been mandated to close their doors in a desperate effort to slow the spread of COVID-19, people have been losing their jobs left and right. Now, we’re seeing the first unemployment report since the first “shelter in place” orders, and it’s far more grim than anyone had expected.
A record 3.28 million Americans filed for unemployment support in the week ending March 21—the most claims ever filed in a single week.
“Normally, when an economy goes into a recession it develops slowly over time,” says realtor.com® Chief Economist Danielle Hale. “That’s not happening this time around. … It’s pretty clear that the economy is grinding to a halt pretty suddenly.”
It will also be a tough blow to the already wobbly housing market, since those who lost their jobs are not likely to be buying a home anytime soon. Even the millions of Americans who haven’t been laid off or lost work yet are likely to hold off on a major purchase, fearing for the stability of their employment. And while ultrawealthy buyers may be insulated from the downturn, they may still balk at plunking down millions of dollars on a property they can’t even walk through. In response to this lack of demand, many sellers will likely pull their properties off the market until the crisis passes.
However, folks shouldn’t expect home prices to plunge by the double digits as they did during and after the Great Recession. In the last downturn, there were many more properties for sale, due to an overabundance of construction and mass foreclosures, than there were qualified buyers.
This time around, there is a severe shortage of housing for sale. Builders haven’t been putting up enough homes to meet demand for years. And there isn’t likely to be a huge wave of foreclosures because borrowers are in better financial shape. Plus, the federal and many state governments, along with some banks, are rolling out forbearance and other programs to help Americans who’ve lost their jobs stay in their homes. This is all likely to stabilize prices.
“Price growth will slow, and it’s possible that prices could decline” in certain markets, says Hale. “Folks expecting price declines to happen like they did during the last recession are going to be disappointed.”
The hardest-hit areas will likely be those with the highest percentage of jobs in tourism, leisure, and hospitality, the industries most affected by the novel coronavirus. But even in these areas, Hale doesn’t expect prices to go down more than 5%.
However, sales will slow down as there are simply fewer buyers and sellers in the market. Plus, it’s harder to transact remotely.
“We will see a shocking drop-off in home sales in a very short period of time,” says Hale.
They’re likely to rebound when the virus is under control, but there will almost definitely be fewer sales this year than anticipated before the pandemic.
“We don’t know when things will get back to normal,” she continues. “But when they do … we might also see a really strong bounce back.”
But Americans should expect things to get worse before they get better. Jobless claims will likely remain high until the crisis abates—and that timeline is still unclear. But the federal stimulus package expected to pass, which includes $1,200 checks to most Americans, could help to steady the markets.
“All the incoming data will also be off the chart for a few months,” Lawrence Yun, chief economist of the National Association of Realtors®, said in a statement. “The key is whether the stimulus package can reverse all these damages by the second half of the year.”