Homebuyers who anticipated a COVID-19 “discount” saw their dreams dashed in May as home prices climbed 4.8 percent over the same period last year, according to CoreLogic’s latest home price index and forecast. Record-low mortgage rates and inventory levels caused hordes of buyers to compete for a limited supply of homes, raising prices by 0.7 percent from April to May.
This upward trend isn’t expected to continue for much longer, however. CoreLogic predicts June figures will show a 0.1 percent price dip as pent-up demand from the spring fizzles out. By May of next year, home prices could decrease by 6.6 percent, “largely [due] to elevated unemployment rates.” CoreLogic said the recent surge in infections will exacerbate the already precarious economic situation.
“Pending sales and home-purchase loan applications are higher than in June of last year and reflect the buying activity of millennials,” said Dr. Frank Nothaft, chief economist at CoreLogic.
“By the end of summer, buying will slacken and we expect home prices will show declines in metro areas that have been especially hard hit by the recession.”
Nationwide, home prices held steady, but local markets in tourism-dependent states like Florida and Arizona — where COVID-19 cases have also spiked in recent weeks — will see the greatest risk of a price drop. Among the 100 largest metropolitan areas, 39 percent were deemed overvalued, 24 percent were undervalued and 37 percent were at value.
The extent to which home prices will be hit varies greatly across the country. For example, Las Vegas could see a 20.1 percent decline in prices by May 2021, compared to just 1.3 percent in San Diego during the same period.
Nothaft emphasizes that the current economic downturn is a result of mass unemployment, not a volatile housing market as seen during the Great Recession. Over the next year, home prices will likely see moderate declines but will eventually rebound as employment levels normalize and infection rates fall.