Corelogic published an update to their Home Price Index (HPI) for June 2020. The highlights are:

• National home prices increased 4.9% year over year in June.

• Home prices are forecast to decrease by 1.0% from June 2020 to June 2021.

• Home Price decreases will hit nearly two thirds of all U.S. states.

Because of the economic downturn that started in March, the HPI is predicting a 1% drop in June 2021. People on Twitter and real estate agents in Los Angeles aren’t seeing this decline as a possibility because there is incredible demand now. Home prices in 2020 are currently following the 2001 recession.

What happened in the past?

In March 2001 - Nov 2001, interest rates for the 30 year fixed fell 7% from 7.03% - 6.56%. From Feb 2020 - Aug 2020 rates have already fallen 13% from 3.45% - 2.99%. The FED reduced interest rates 11 times in 2001 and reduced taxes with the EGTRRA: The Economic Growth and Tax Relief Reconciliation Act of 2001. [Reference The Federal Funds Rate History]

The federal funds rate currently is .25%, effectively zero. Federal funds rates have hit .25% in the past in December 2008, Between 2008 and 2015, the Fed kept the rate at zero. The recession ended in June 2009.

Where do we go from here?

We don’t have any room left on interest rates. I don’t know what that means for the future. I think we are currently in a volatile phase where we could get inflation or deflation over the next 10 years.