US home prices have jumped, but a drop is on the way

Home prices spiked nationwide in April, and all 50 states saw price increases, but a new report also says prices are likely to fall into next year.

That would provide an additional gift to homebuyers who have been enjoying the lowest mortgage rates in history during the coronavirus outbreak and economic crisis.

"If unemployment remains elevated in early 2021, then we can expect home prices to soften," says Frank Nothaft, chief economist at the data firm CoreLogic.

Prices have been rising this spring

House prices in April were up a strong 5.4% compared to a year ago, and rose 1.4% from March, CoreLogic reported on Tuesday. They're likely to keep climbing in the short term, despite the weakness in the economy.

“The very low inventory of homes for sale, coupled with homebuyers’ spur of record-low mortgage rates, will likely continue to support home price growth during the spring,” Nothaft says, in a news release.

Thirty-year mortgage rates last week hit an all-time low average of 3.15% in the long-running survey from mortgage company Freddie Mac — and rates below 3% have started popping up.

CoreLogic predicts the increases in home prices will start to slow, and before long prices will begin falling. The company predicts they'll be down 1.3% by April of next year, and that 2021 will be the first year of declining real estate prices in nine years.

Prices for existing homes take off

Other reports also have shown rising home prices this spring. For example, the National Association of Realtors recently said prices for previously owned homes were sizzling nationwide: The median selling price in April was $286,800, 7.4% higher than a year earlier.

The trade group's chief economist, Lawrence Yun, says prices for existing homes have been soaring because eager home shoppers haven't been finding enough houses to buy.

"Record-low mortgage rates are likely to remain in place for the rest of the year, and will be the key factor driving housing demand as state economies steadily reopen," Yun says.

A reading from the Census Bureau is an exception among the recent reports on housing prices. It showed prices for new homes plummeted in April to a median $309,900, down 5.2% from March and a decrease of 8.6% from a year ago.

What other forecasters are saying about home prices

Like CoreLogic, real estate website Zillow is predicting a drop in home prices. Zillow says house prices overall will fall 1.8% during 2020 and will hit bottom in October.

"The continued economic fallout from the spread of COVID-19 has introduced immense uncertainty into the housing market as consumers step back from large purchases and social distancing puts a chill on necessary market services," Zillow says.

But Freddie Mac expects prices for homes will edge up 0.4% this year, and sibling company Fannie Mae also is looking for slightly higher prices.

"We expect that most of the economic damage from the virus will be contained to the first half of the year," says Freddie Mac's chief economist, Sam Khater.

Bottom line: Location, location, location

Whether home prices are or will be going up or down depends to a great extent on where you're looking. As today's extremely low mortgage rates lure consumers out of home confinement and into homebuying, bidding wars are pushing up prices in some markets with shortages of home listings.

More than 40% of offers written by Redfin agents faced competition during the four weeks that ended May 10, the real estate brokerage says.

In the Seattle area, Redfin agent David Hokenson had a client who made an offer on a home listed at $360,000 in a desirable suburb.

"Even though the home was outdated and hadn't been renovated since the 1960s, it was one of 24 total offers. That home ended up selling for well above asking price," Hokenson says.