The next recession will begin in 2020, according to real estate economists and experts in a poll sponsored by Zillow. A fifth of respondents targeted the third quarter as the likely beginning.
Thirty-five percent of panelists predicted that the current expansion would end in 2021.
Pulsenomics surveyed 112 real estate experts and economists in the second quarter about their expectations for the next recession and how homebuying demand would change through the end of 2020.
Survey respondents said the likeliest cause for the next recession would be trade policy, followed by a stock market correction and a geopolitical crisis. Only 12 respondents thought a housing slowdown would be a significant factor.
“Housing slowdowns have been a major component, if not catalyst, for economic recessions in the past, but that won’t be the case the next time around, primarily because housing will have worked out its kinks ahead of time,” Zillow’s director of economic research, Skylar Olsen, said in a statement.
“Housing markets across the country are already heading into a potential correction a solid year before the overall economy is expected to experience the same. The current housing slowdown is in some ways a return to balance that will help increase the resiliency of the housing market when the next recession does arrive.”
Effects on Housing Market
Zillow noted that even if a housing slowdown does not cause of the recession, the market will likely feel its effect.
Fifty-one percent of the panelists said they expected homebuying demand to be somewhat or significantly lower in 2020 compared with 2019, while only 17% said it would increase.
Homes will likely stay on the market longer, and bidding wars will become less common, Zillow said, citing 2011 as an example. That year, it took some 17 weeks to sell a home, compared with 11 weeks to close on a sale in 2018.
Not only that, the final sale price was further below the listed price throughout the recession, hovering near 91% of the original price in early 2011. Today, homes sell for about 98% of the asking price.
Still, a recession would not precipitate a sudden plunge in home values, according to Zillow. In the last recession, when housing was a much larger factor than it is expected to be in the next one, national home values fell on an annual basis for 54 months before reaching their nadir in 2012, and never fell by more than 1% month over month.
Zillow reported that home value appreciation has slowed, down from 8.1% annual growth in December to 5.2% in June — the slowest annual pace since 2015.
The expected decline in demand in 2020 is likely to extend the housing slowdown going forward, it said.
In 2019, home prices are predicted to rise 4.1%, but experts have lowered their forecasts for home price appreciation for the next couple years.
They predict that home prices will increase 2.8% in 2020, down from their second quarter 2018 prediction of 2.9% growth. Similarly, their 2021 forecasts have receded from 2.6% growth to 2.5%.
“More than any other factor with the potential to impact homebuying demand through 2020, mortgage rates are viewed by our expert panel to be most significant,” Pulsenomics founder Terry Loebs said in the statement.
Although 30-year mortgages are near 18-month lows and available now at rates below 4%, the near-term outlook for home prices has actually weakened somewhat from the February survey, Loebs said.
“Together, these data suggest that most experts believe the recent rate move is a temporary dip, and that homebuying demand through next year will be dampened by other, more persistent factors that affect affordability, such as constrained inventory and the growth of house prices relative to wages.”