Housing demand to collapse as virus takes hold

The coronavirus will cause a severe contraction in housing market activity. Mortgage applications for home purchase have already seen a 33% drop from their peak in late January. A surge in unemployment to record highs, and restrictions on movement, mean home sales will see a fall of 50% to 60% q/q between the first and second quarters. But action by states and Congress will prevent a surge in mortgage foreclosures and forced sellers, preventing a crash in house prices. With employment already seeing large declines, household formation will grind to a halt and absorption rates for new apartments are set to hit record lows. But, with no one able to move and evictions banned in most places, overall rental vacancy rates will see only a small rise. A rise in yields, and drop in rental growth, means total returns to apartments will drop to around -5% y/y by the end of the year.