Home prices to drop 2% to 3% in 2020... Seriously?

Zillow Research recently published its forecast, a baseline "2%-3% drop in (home) prices through the end of 2020, followed by a slow recovery throughout 2021. Prices will return to 4Q19 levels by 3Q21." Its pessimistic case calls for a 3%-4% drop.

While this prognostication may seem exceedingly rose-tinted given the likely double-digit percentage economic contraction of this year, there are reasons for optimism and why we may not in fact be in "Housing Bubble 2.0" territory.

Several factors may "flatten the curve" that will keep housing supply from overwhelming the softening demand.

1. Mortgages in forbearance plans made up 7.54% of mortgage servicing portfolios last week according to the Mortgage Bankers Association. These home owners will be gaining a 90-180 day payment holiday, dampening the impact of the double-digit levels of unemployment.
2. Home owners are also in better equity position in aggregate, sitting on $6.2 trillion of untapped home equity, or 1.65x the amount at the end of 2007, right before the last housing crisis. If the home is an ATM, it's a well-stocked one.
3. Moreover, since the Great Recession, housing production has been well under historical levels. Freddie Mac estimates that "2.5 million additional housing units will be needed to make up this shortage."

Even if all these factors help attenuate the drop in housing prices to the levels estimated by Zillow, it will not be smooth sailing ahead for all. There will, in all likelihood, be significant local disparities driven by, for example, industries and uses.

1. Areas reliant on the hospitality industry will be hard hit. Some predict it will take "the U.S. hotel industry approximately five years to achieve pre-COVID-19 occupancy, revenue and profitability."
2. Similarly areas with exposure to the sharing economy, like Airbnb or VRBO holdings, may see distressed selling as overstretched owners capitulate as their "bargain with the devil" turns south.
3. This pandemic will also influence our housing and living behavior. The Atlantic's recent piece on epidemiological-driven retail change has a clear second-order impact - our housing priorities.

Extra credit (for now): How will the fintechs/proptechs of the recent wave find ways of surviving in this new normal? Some initial considerations...

1. Will iBuyers like Opendoor become tech-enabled, social-distancing acceptable front ends for institutions seeking to roll up distressed housing stock?
2. Will fractional equity plays like Point be able to pivot to help consumers access tappable equity rendered untappable due to financial distress?