Despite relatively steady home price appreciation in May, the U.S. housing market is on the precipice of an extended price slump, according to a CoreLogic report released Tuesday. The housing data provider’s May Home Price Index and HPI Forecast report predicts a year-over-year home price decrease of 6.6% by May 2021.
The forecast comes on the heels of a host of relatively positive housing data that found demand picking up after its initial coronavirus-induced decline in early spring. Home prices in May 2020 grew 4.8% from the same month in 2019 and 0.7% from April 2019, according to the CoreLogic report—greater than the 0.3% month-over-month increase CoreLogic predicted in April.
While robust demand and a tight supply of homes for sale have kept prices up through the crisis, “the anticipated impacts of the recession are beginning to appear across the housing market,” CoreLogic said in a press release. The company’s May forecast predicts a month-over-month price decrease of 0.1% in June and a year-over-year decline of 6.6% by May 2021.
“Pent-up buyer demand was delayed from spring to summer and is reflected in the latest price data,” Frank Martell, president and CEO of CoreLogic, said in a press release. “But with elevated unemployment, purchase activity and home prices could fall off after summer.”
Should prices decline 6.6% between May 2020 and May 2021, it would be the greatest year-over-year price drop since September 2009, when home prices declined 7.6% from the year prior, according to 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,” Frank Nothaft, chief economist at CoreLogic.
While all states are expected to experience a price decline, Arizona and Florida “faced the perfect storm of elevated COVID-19 cases and the subsequent collapse of the spring and summer tourism market,” the report says. “While harder-hit areas may also experience a slower rebound, the preservation of factors like low mortgage interest rates and a shortage of for-sale supply have already supported prices in some metros and may also encourage home price stabilization nationwide.”
According to the May report, the markets most at risk of a decline in home prices are Prescott, Ariz.; Lake Havasu City-Kingman, Ariz.; Naples-Immokalee-Marco Island, Fla.; Crestview-Fort Walton Beach-Destin, Fla.; and Daphne-Fairhope-Foley, Ala.
The CoreLogic report is not the only signal of a potential slowdown in recent weeks. A Mortgage Bankers Association index that measures the weekly volume of applications for a loan to purchase a home has posted week-over-week decreases for two weeks in a row, though the level remains greater than the same period in 2019. “The weakening in activity is potentially a signal that pent-up demand is starting to wane and that low housing supply is limiting prospective buyers’ options,” Joel Kan, the organization’s associate vice president of economic and industry forecasting, said at the time.