Forecasting the Global Housing Market: Insights and Predictions

The global real estate market is a dynamic and complex system, frequently impacted by various economic and social factors. Predicting whether a housing recession will occur in 2020 or 2021 involves understanding the current state of the market, including the effects of policies, economic turmoil, and demographic shifts. This article explores these factors and offers insights into the future trajectory of the housing market.

Current Trends and Uneven Market Conditions

Without a second stimulus package, the impact of the third wave of the COVID-19 pandemic could lead to more widespread lockdowns. These measures may result in increased default rates on mortgages, particularly if employment conditions remain volatile. This scenario could potentially trigger a recovery of the real estate (RE) market at the start of 2021. However, such a prediction should be taken with caution, as the current economic landscape is highly uncertain.

No Housing Recession in 2020, but Potentially 2021

It is currently too late in 2020 for a housing recession to materialize. The evidence does not support the onset of a recession in 2021 on a national or state level either. Regional/local markets may experience slowdowns due to job market conditions, but the overall trend indicates stability for now.

Homebuilder and Housing Affordability Concerns

The homebuilding industry is facing challenges, including poor affordability in new homes. Homebuilders in certain regions are developing properties in areas that are far from essential amenities, such as grocery stores. This approach may not align with the needs of potential buyers who are looking for convenient and accessible living spaces.

Global Housing Market Cycles

Historical data reveals that the global housing market operates on a cyclical basis spanning approximately 20 years. Empirical evidence from the past 3000 years supports this cycle, where we observe fluctuations in housing prices over this period. In the United States, for instance, the housing bubble burst around 2017, following a period of price increases from 2017 onwards. Given this pattern, the next housing downturn is likely to occur in the mid-2020s, around 2025-2027.

Indicators for a Housing Bubble Burst

To predict a housing bubble burst, several key indicators should be monitored:

Homebuilder Margins: A wide discrepancy in homebuilder margins could signal a potential bubble burst. If margins are unusually high, say above 40%, it may indicate that developers are overvaluing their projects. Market Exit: When significant homebuilder companies cease their operations, it could suggest that the market is unsustainable and is on the verge of a crash. Inventory Levels: A consistent and growing inventory of unsold homes is a clear red flag that a downturn is approaching.

Based on these indicators, it is anticipated that the next housing bubble may burst sometime between 2023 and 2024.

In summary, while a national recession in the housing market is unlikely in 2020 and early 2021, regional variations and homebuilder-specific challenges may lead to local slowdowns. Understanding the cyclical nature of the housing market and recognizing key indicators can help investors and industry professionals prepare for potential downturns.