October 2020 US housing and mortgage market outlook

Housing has been a bright spot for the US economy. Will US housing markets maintain momentum?

We are entering the homestretch for 2020, with just about two months left. It has been an intense year, with many twists and turns. Given all the uncertainty many people have been asking me to share my perspective on the outlook for US housing and mortgage markets. I’ve given many talks, in this article I’m laying out the basic view that forms the core of my recent presentations.

The COVID-19 pandemic and the associated recession are of course the dominant drivers of the outlook. Infection rates are once again rising in the US and there is tremendous concern that we are seeing a new wave both in the United States and around the world. However, despite the significant challenges facing the US economy the housing market has held up remarkably well, particularly the owner-occupied segment of the economy, which makes up about 2/3 of all households.

Why the US housing market has held up

There are three major reasons why the housing market has held up in 2020.

First, low mortgage interest rates provide a significant lift to housing markets.

Second, while there are still elevated levels of unemployment, the brunt of the Coronavirus recession has not (yet) hit owner households. The direct effects of the pandemic and associated shutdowns have primarily hit the renter population. In addition, there has been significant support for US housing markets beyond low interest rates in the form of forbearance programs and foreclosure moratoria, which have prevented any fire sales that would lead to possible house price declines.

Third, there has been a strong undercurrent of housing demand, driven primarily by demographic forces (the aging Millennial generation, who are entering peak homebuying years), but also possibly accelerated by a shift in preference toward single-family housing and away from apartments and condos in dense urban areas.

Remarkably, these forces have helped the housing market rebound strongly, as we’ll examine below.