"The bottom is here" for the housing market: Zillow Economist

Zillow forecasts that home sales may fall as much as 60% through the end of this year, before rebounding by the end of 2021. Zillow Senior Principal Economist Skylar Olsen joins Seana Smith to discuss.

Video Transcript

SEANA SMITH: We've seen a significant slowdown in the housing market nationwide. And this comes as buyers and sellers really put their plans on hold amid the coronavirus pandemic. Now Zillow is out with a new report today on the impact from the virus, and when we could expect to see a potential rebound.

So for that, I want to bring in Skylar Olsen, Senior Principal Economist at Zillow. And Skylar, it was a very interesting report. Thanks for joining us--

SKYLAR OLSEN: Oh, good.

SEANA SMITH: --to discuss this. Let's start with how hard of a hit do you think we're seeing right now to home sales this spring because of the coronavirus?

SKYLAR OLSEN: Yeah, we are absolutely seeing economic activity being impacted, and housing. Right now, actually, we are expecting that the bottom is here, right? So we saw pending sales, for example, hit bottom mid-month during April, at negative 39% year-over-year. So much, much lower, of course, than those 2019 levels. Sales, you know, coming after pending, we expect to happen at this point now.

If I think about where we were in February, which was actually going-- you know, we were on the way up. Sales activity was increasing and increasing, even in a seasonally-adjusted way as well, as we were entering what would have been a very, very, very strong home shopping season. We do expect pending-- or excuse me, sales to fall anywhere from 50% to 60% from those heights. And that bottom is pretty much now.

Now we'll be able to confirm those home sales numbers when we start receiving those reported records from county offices. In the meantime, the pending sales do seem to confirm about the magnitude of this fall. And then we'll get into the business of steady, steady, but slow recovery.

SEANA SMITH: Yeah, and when we talk-- when you talk about that recovery, when can we expect to see a rebound in the housing market? What is the timeline for that?

SKYLAR OLSEN: Yeah, if you want to think of the general shape that home sales are taking, it's like a check mark, right? An immediate fall, and then at first rapid recovery, as we're having. We're seeing a lot of home buyers that were frustrated from previous years' low inventory, currently low interest rates. Credit standards are high, but if you were ready, you're potentially looking right now.

We'll start seeing that activity increase at first. But then we're expecting about a 10% increase each month off of those low bottoms, which will put us at a full recovery to those really solid February numbers-- not really until mid and 2021.

SEANA SMITH: Skylar, when you take a look at the housing fundamentals-- absent the coronavirus, which obviously is having a huge impact on the sector-- but just strictly the housing fundamentals, do you think they're still pretty strong at this point?

SKYLAR OLSEN: Yeah. I mean, absolutely, if you take that the virus out of it. That's actually one of the reasons why we don't expect prices to fall very much over the course of this recovery. The expectations are just anywhere from 2% to 3% dropping.

Now that would feel very large if we didn't just have an incredible example from 2008 to 2012, where prices fell 30%. Remember, that was an era of excess credit, excess inventory, so that when we went through joblessness, a lot of it came tumbling down because of foreclosures and distressed sales. Housing is so much more resilient leading into this crisis than it was before that one.

Credit was still very tight. Home ownership rates still remained very low. And building had not really come back yet. Actually, it had just reached that million dollar rate-- or excuse me, million unit rate mark that we were waiting for to signal that builders' confidence has returned.

And then, and then, and then this.

SEANA SMITH: Yeah, Skylar, I want to-- because it's interesting in your report. So you gave what you're expecting for home prices. But then you also have a pessimistic scenario, and then also a more optimistic scenario. But I want to ask about the more pessimistic scenario, which you said only has a 25% likelihood that it will actually happen.

But this shows the fact that we could see home prices drop in the 3% to 4% range. I guess what are the key factors that you're looking at that could potentially trigger this scenario?

SKYLAR OLSEN: Yeah, so getting to that more pessimistic scenario really reflects a more pessimistic scenario in general for our greater economy. Because, you know, the housing kind of starts from a resilient place. We are absolutely experiencing what the rest of the economy is, right, which is the joblessness, the income loss, the lack of confidence, the greater uncertainty.

So the pessimistic scenario is a pessimistic one for the greater economy as a whole. So a deeper fall in GDP than what we're expecting in the more likely scenario, and a much slower GDP recovery as well, that will in turn lead the slower recovery in sales and prices.

SEANA SMITH: Skylar, what areas-- when we take a look at how coronavirus is impacting real estate, what areas of the country do you think will be hardest hit from coronavirus?

SKYLAR OLSEN: Absolutely. Yeah, right now, economic activity-- housing activity included-- is much more correlated with the course of the virus itself than say shutdown orders or anything else. So the Northeast in particular is really struggling, and still struggling on our housing indicators as well-- so much deeper fall in pending sales, for example, much deeper fall in search activity, and not quite as much of a turnaround yet in those areas.

SEANA SMITH: And speaking of a turnaround, are there any areas where you're already seeing a rebound, or that you expect to rebound the quickest?

SKYLAR OLSEN: Well, we're already seeing a rebound, actually, in terms of pending sales activity, and in the course of new listings, so the number of homeowners that are putting their home on the market for sale. Those absolutely fell in a very dramatic way. But we've since seen those numbers start to inch up slowly.

The places that are where-- you know, the fall wasn't so bad and the inch up is a bit more significant are places like Dallas and Houston, Minneapolis, kind of areas in general that haven't been hit quite so hard by the virus itself.

SEANA SMITH: All right, Skylar Olsen, Senior Principal Economist at Zillow. Thanks so much for joining.

SKYLAR OLSEN: Yeah, thank you for having me.