We expect the housing market to remain resilient to the “Covid-19” recession

• While economic damage from COVID-19 is often attributed to combination of government-enforced lockdowns and consumer risk aversion, research shows over 90% of the declines in economic activity has been driven by the public’s fear of infection.

• Consequently, we believe, “the pandemic is the economy”: No remission, no recovery.

• The “summer resurgence” proves the point, sharply slowing the speed of recovery from V-shaped to L-shaped.

• This resurgence has already prolonged the depth and duration of the economic damage from the pandemic, adding to the already catastrophic rates of unemployment and small business failure and thus further lowering the odds of a full recovery.

• That said, if it also helps bring about new social norms that help stop the rate of infection, it may ironically avoid the wave we might have otherwise gotten this fall, thus hastening the end of the crisis.

• The housing market has proved to be a bright spot in the pandemic economy with houses prices up 3.8% for 1H 20202 and double-digit year-over-year rent growth across some Midwest cities.

• We expect nominal house prices to rise by 1.4% in 2020 before decelerating to roughly zero growth in 2021. Given severity of the unemployment shocks, this forecast is in sharp contrast to the 26% decline nationally during the Global Financial Crisis (“GFC”).

Five Reasons Why “This Time is Different” for Housing

We expect housing market to demonstrate resilience to this recession for the following reasons:

• • Housing valuations at the beginning of this crisis were only moderately above fair value.

• • House price appreciation has been driven by supply scarcity (not demand exuberance).

• • The Federal Reserve’s aggressive support of bond markets has avoided “crunching” the supply of mortgage credit to households.

• • Job losses have fallen disproportionately on lower-income renters vs. higher-income owners.

• • Housing demand is tilting towards the suburbs, and this shift may prove persistent.