As COVID-19 has brought many businesses to a halt, realtor.com [1] ask if the economic impact has led to a recession or a depression, and examine how these outcomes would impact housing.
"This current situation is unique. There's no doubt that the economy has stopped growing, at least temporarily," says realtor.com Chief Economist Danielle Hale. "It’s an open question as to how long this will continue, and that could affect whether or not they call this time a recession. The severity of the decline could affect what they call this, too.”
As realtor.com notes, economists are hopeful that the federal stimulus checks and small-business loans, a proactive Federal Reserve, which slashed short-term interest rates to between 0% and 0.25%, and mortgage forbearance will help to stave off utter disaster and help the economy to recover faster.
Unlike the Great Recession, the housing market isn't to blame for the downturn this time, but real estate may not escape unscathed. Fewer homes will be sold until the economy picks back up, and many sellers have pulled their homes off the market
"In a normal recession, sellers will try to wait it out," says Hale. "The number of listings fall as folks wait until the economy improves and they can score top dollar for their properties. Only people who have to sell will choose to sell."
If this turns out to be more like a depression, prices will likely come down further and there will be fewer home sales.
"If this turns into a more prolonged downturn, I don't think it will change the desire for people to buy homes," says Hale. "But it will make it more difficult for them to make that a reality.”
If the high unemployment rate continues, the U.S. could see another wave of foreclosures, even with forbearance programs in place. Additionally, while Hale believes if the nation's reopening goes well, the economy could improve by the summer, another surge in COVID-19 cases would change our course.