The housing market in the U.S. could enter a recession, according to online real estate company Zillow which predicts that will happen in 2020. In a research report, Zillow polled 100 real estate experts and economists about their predictions for the housing market.

The report disclosed that nearly half of all survey respondents said the next recession will commence in 2020, with the first quarter of the year cited the most as to when the recession will start. The main culprit for the housing recession—monetary policy.

Key Takeaways

  • The U.S. housing market has recovered from the financial crisis, with home prices exceeding the pre-collapse valuation in many areas.
  • Despite a record bull market since the crisis, the housing market in the U.S. could enter a recession in 2020, according to Zillow.
  • This prediction is based on their own outlook combined with results from a survey of homeowner sentiment.

What Zillow Thinks

Zillow is a popular website that aggregates real estate price information and gauges market sentiment for homebuyers and sellers. In this report, several Zillow experts weighed in on the results.

"As we close in on the longest economic expansion this country has ever seen, meaningfully higher interest rates should eventually slow the frenetic pace of home value appreciation that we have seen over the past few years, a welcome respite for would-be buyers," said Zillow senior economist Aaron Terrazas in the research report. "Housing affordability is a critical issue in nearly every market across the country, and while much remains unknown about the precise path of the U.S. economy in the years ahead, another housing market crisis is unlikely to be a central protagonist in the next nationwide downturn."

Zillow Survey Insights

If the survey respondents' predictions prove true, the current economic expansion will be the longest ever recorded. While a housing collapse ushered in the Great Recession of 2008 and 2009, most survey respondents didn't think a downturn in the economy will be centered on the housing market this time around. They thought the Federal Reserve's actions when it comes to interest rates would be the biggest reason for the looming recession. After all, if rates go up, it will be more costly to take out a mortgage, shutting some buyers out of the purchasing process. They noted that, if the Fed raises rates too quickly, it could slow down the economy and lead to a recession.

Higher rates make mortgages more expensive, shutting some buyers out of the market.

Zillow pointed out that survey respondents were more concerned with geopolitical issues before 2018, citing a crisis on that front as the most likely cause of a future recession. Those worries fell below monetary policy concerns. Other concerns are focused on a trade war with China, a stock market correction, and unexpectedly high inflation. Those same respondents expected the housing market to continue to grow, with home values expected to rise 5.5% this year. At this time a year ago, the real estate experts thought home values would increase by 3.7% this year.

"Constrained home supply, persistent demand, very low unemployment, and steady economic growth have given a jolt to the near-term outlook for U.S. home prices," said Pulsenomics founder Terry Loebs, which conducted the survey for Zillow. "These conditions are overshadowing concerns that mortgage rate increases expected this year might quash the appetite of prospective home buyers."