Buyer demand and healthy housing-market dynamics will prevent U.S. home prices from dropping more than 2 percent to 3 percent, or more than 1.7 percent year-over-year in the wake of the coronavirus, according to a forecast released by Zillow.

The forecast says home sales will fall as much as 60 percent this spring and take through the end of next year to recover, while prices will fall through the year but recover a few months sooner.

The recovery is likely to look like a checkmark, with transactions building at a pace of about 10 percent each month through the end of 2021, according to the forecast by Zillow Chief Economist Svenja Gudell and her team of economists and analysts.

The forecast reveals that the steep drop in sales is spurred by overall economic uncertainty and the industry adjusting to public health orders that shut down or hindered the ways transactions have traditionally been done.

“Until March, this spring was expected to be the hottest home shopping season in years, with record-low inventory and interest rates, and high buyer demand fueled by ongoing demographic trends, such as an ever-growing share of millennials entering prime first-time homebuyer age,” Zillow said.

“Those underlying dynamics still exist to fuel the recovery – already new listings and pending sales have ticked up, as well as increasing adoption of tech tools to enable social distancing – and others provide resilience against the potential for widespread distressed sales. So the effect on prices will be modest compared to the nearly 25 percent drop and five-year recovery that defined the housing-led Great Recession.”

The forecast centers around a baseline prediction of a 4.9 percent decrease in the United States GDP in 2020, and a 5.7 percent increase in 2021. Under that scenario, which Zillow believes is 70 percent probable; the market is expected to include:

• A 2 percent to 3 percent drop in prices through the end of 2020, followed by a steady recovery throughout 2021.
• A rapid 50 percent to 60 percent decline in home sales, bottoming out this spring and recovering at a pace of about 10 percent each month through 2021.

“Much uncertainty still exists, particularly with some states beginning to reopen and experts warning of a possible second wave of the coronavirus in the fall. However, housing fundamentals are strong – much more so than they were leading into the Great Recession – and that bodes well for housing in general,” Gudell said. “Despite the difficulties, we’re seeing several signs that there is still a good amount of demand for housing, and buyers, sellers and agents are growing more comfortable moving transactions forward where possible. For those who need to sell, buyers are out there, and there are ways to embrace technology and practice social distancing to ensure a safe process.”

According to the most recent Zillow Home Price Expectations Survey, fielded in January prior to the U.S. coronavirus outbreak, a panel of more than 100 economists and experts had been expecting home prices to rise 3.3 percent in 2020, on average, and another 2.7 percent in 2021.