US House Price Projections from the Economic Impact of the Coronavirus

Could coronavirus-induced economic shocks hurt U.S. house prices as much as the 2008 global financial crisis (GFC) did? This article identifies four drivers that could produce much milder house-price depreciation this time: early and broad mortgage- and housing-relief policy responses, the apparent lack of a preceding house price bubble, historically moderate mortgage and consumer-debt levels and lower mortgage rates. The authors apply a previously published time-series–based house price model, combined with these exogenous drivers. Fitted to historical data between 1987 and 2020, the model estimates a 1.66 transmission rate from GDP underperformance to house-price appreciation (HPA) underperformance, a ratio of 0.3 between HPA and a mortgage rate relative percentage rally. If mortgage rates rally from 3.7% in 2019 to 2.7% and the GDP takes a hit of 11% below-trend growth, then the model estimates roughly 10% below-trend growth for national HPA, which is much milder than the experience during the GFC.

Historical Four-Year Cumulative HPA vs. Forecasts Based on a Time-Series Model and Exogenous Drivers of GDP, Credit Expansion and Mortgage Rates