The housing market has bottomed: Zillow Senior Principal Economist

Skylar Olsen, Zillow Senior Principal Economist, joins Yahoo Finance to discuss the impact of COVID-19 on the housing market and what that means for buyers and sellers.

Video Transcript

JEN ROGERS: Welcome back to Yahoo Finance Presents Recessionomics, so we have been answering all of your recession related questions. And you have a lot of them about one topic. What is it that everyone likes to talk about at a cocktail party? It's real estate.

Yeah, you all want to know what's happening with the housing market. Let's bring in Skylar Olsen, Senior Principal Economist at Zillow. Skylar, I mean, this is everybody's biggest investment. People are very concerned about what is happening with home values right now. What can you tell us? Are home values going down, down, down, or are they kind of stable?

SKYLAR OLSEN: No, certainly not multiple down downs, you know? They are stable at this time. Something to make that make a little bit more sense in your mind, consider that, yes, buyers are pulling back significantly because of job loss, because of uncertainty. But so are sellers, right? And if I have fewer buyers on the market but fewer options for them, that can actually keep the pressure on prices more stable over the crisis period.

Now when we get to the business of recovery and as we move further on into that process, we do expect prices to go a bit soft. Nothing like the global financial crisis. I know which you guys were using as a reference in their last segment, where prices fell 25% from 2007 to 2012. We're expecting to hit anywhere from 2% to 3% below those really optimistic February numbers towards the end of this year and then see prices start to come back up.

RICK NEWMAN: Hey, Skylar. Rick Newman, here. So I've been fielding a lot of these questions from our audience, and you hit on a really important thing there, which is a lot of people do remember the wipeout in 2006 to 2010. And I guess they kind of forget that the housing bust was in large part the cost of the recession.

SKYLAR OLSEN: Absolutely.

RICK NEWMAN: Home price declines were not a consequence of it. A lot of people are thinking, is there a dip buying opportunity? You just kind of said, maybe there is one coming up. How will you know when-- and this, of course, is regionalized and localized, I realize. But how do you know when it is a good time if you're trying to buy the dip in housing?

SKYLAR OLSEN: Well, it's very difficult to time the market. And every market is going to be a little different, especially as different metros grapple with the virus in different ways, which impacts our confidence and how that economy will evolve or the speed of that recovery. If I'm kind of speaking to buyers in general, my best advice that, I think, I've hit on over years of talking about housing is it can be a good time to buy, even if prices go a little soft, so long as you find a good match between you and the property you're buying, and you want to stay for a significant period of time, right?

You're really comparing it, in other words, to your other option, which is continuing to rent or continuing to stay, right? As long as you stay for an extended period, home equity growth will come back, and you will eventually overcome those upfront costs of renting. Now, if we're thinking about this environment, though, and I'm thinking about, how do I know I make a good match?

Finding a lot of options is a part of knowing that, right? Being able to select from a bunch of different homes on the market and saying, this is the one that I love that I'm going to stay in for a long period of time. Right now, the rate of new listings coming on the market is improving. It's actually 6% up over the week, so we're seeing sellers start to come back having a little bit more confidence putting their housing on the market for sale. But that's a 39% lower than it was at this time last year in terms of the rate of new homes coming on the market.

That can impact your ability to make that match. With that said, interest rates remain incredibly low. And if you have the high credit viability to access credit at a time when standards are really rising, it could-- you know, it's not necessarily a bad time for you.

Those interest rates could be very appealing and very attractive. Timing wise, though, if you really want to go off of our national forecast and try to time the market, we would expect it to hit as low as prices would go around October. That's a national picture. Each metro is going to be different because of how it's handling the virus itself.

MYLES UDLAND: Well, and Skylar, certainly anecdotally for myself, I think a lot of younger people are looking at their living situations, looking at living in apartments in cities and saying, now is the time to go. But as you just outlined, what's been squeezing this market for years is a lack of supply. Is there a risk that every millennial decides once it's time to buy a house and supply is still squeezed? So the housing market never really has the time to reset as it were, and we kind of find ourselves in a year's time where we were last year, which was probably too many buyers for too few homes, especially at the lower end of the home price scale.

SKYLAR OLSEN: Yeah, absolutely. I'm going to add another rub on top of what you just talked about, which is we were experiencing really low levels of inventory even before this crisis, because building had yet to reach the rate that keeps up with household formation, right? One million units annualized rate coming on the market of brand new supply to take the pressure off of the housing market when this wave of millennials was finally reaching home buying ages.

Now having that lack of building is what's going to help keep prices stable, because I don't have access to units. Remember, the last global financial crisis and housing bust was preceded by a housing boom. We had excess vacant units so that when foreclosures came back on the market, it just caused even more of a problem.

But now, we don't have that same issue. Now projected into the future, and consider the fact that builder confidence has plummeted due to this crisis. So over the long run, we're going to go through another period of under building. And if we do recover relatively quickly-- you know, knock on wood everywhere all the time these days.

But if we do recover towards the end of 2021 to maybe this fuller state, we will have a hard time with inventory, because we went through another round of not building enough a handle for the long run, right? And you're right. There are the-- you know, the demand that was coming from a slow and steady record long expansion, that's going to be gone.

JEN ROGERS: All right, we got to go, Skylar, here. Great to talk with Skylar Olsen with Zillow. A complex picture, but good to get zoned in on it with you. Have a great weekend. Thank you everybody for all of your questions. Keep them coming. This is Yahoo Finance's Presents Recessionomics. Thanks a lot to Rick Newman and Myles Udland. Have a great weekend.