Will coronavirus outbreak slam U.S. home prices?

Experts differ. A Realtor chief economist says there won’t be any change this year, while another prognosticator foresees a drop as great as 30%.

By Jeff Lazerson

Who’s right? Both are well-respected and reputable.

A real estate trade association chief economist and a 44-year mortgage industry researcher and analyst are predicting entirely different conclusions about where the median home price lands by the end of 2020 as a consequence of the coronavirus pandemic.

“By year end, maybe no meaningful change to median home price for the country as a whole,” said National Association of Realtors Chief Economist Dr. Lawrence Yun when asked about 2020 year-end median home prices. “That assumes some rebound in jobs and private sector income after the precipitous fall in the second quarter.”

The upper end of the market, Yun conceded, is likely to experience a modest price decline.

But Tom LaMalfa, president of Cleveland-based TSL Consulting, sees dramatic danger for leveraged homeowners.

“Home prices will drop 20% to 30% over the course of this calendar year,” said LaMalfa.

Long before the 2008 bailout and government conservatorship of Fannie Mae and Freddie Mac, LaMalfa was sounding a similar leverage alarm about the two mortgage giants. LaMalfa predicted F & F would create major problems for all stakeholders with their risky positions, having so little capital. Fannie and Freddie remain in government conservatorship and will be there for the foreseeable future.

Other views?

“No forecasting until we get more clarity on government programs,” said John Burns, CEO of John Burns Real Estate Consulting. “I think the government will come to the rescue and throw the sink at this.”

The California Association of Realtors is currently updating its forecast which was not available by press time.

My view: I’m worried about median home prices dropping 15% by the end of 2020.

In the past few weeks, I’ve taken more than two dozen calls from clients and column readers with high anxiety about their jobs and businesses. How will they continue to make their house payments?

More disturbing than those conversations was the March 24 blog post by St. Louis Federal Reserve Bank economist Miguel Faria-Castro estimating potential unemployment of more than 32%.

How are some buyers and sellers reacting since the coronavirus lockdown started?

To my own admitted surprise, we have not seen any letup at my shop. We are receiving a steady number of new purchase mortgages as new purchase escrows continue to open. And, not a single cancellation (coronavirus related or otherwise) so far.

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What we are also seeing is an almost insurmountable amount of coronavirus-related challenges to get both purchase and refinance mortgages funded. Here is just a sampling of the stressors:

  1. The Internal Revenue Service has temporarily stopped validating the accuracy of tax returns for mortgage lenders. This is especially challenging when it comes to self-employed borrowers. The good news is many lenders have workarounds.
  2. Mortgage payoff demand statements, HOA documents, employment verifications subordination agreements are taking several weeks in some cases.
  3. Property access is a challenge when interior home inspections and interior appraisal inspections may be required.
  4. Mortgage companies largely do not have sufficient staffing to manage the current heavy refinance application volume. Working remotely creates additional delays and obstacles for underwriters and loan processors.
  5. Pre-funding employment verifications and still-in-business company verifications add that much more lender detective work.

Besides being thankful and grateful to those on the coronavirus frontlines, please thank those underwriters, funders, loan processors and escrow officers who are maintaining housing transaction commerce and getting your desperately needed cash out.


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Jeff Lazerson - Mortgage Columnist since 2011