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Home prices could fall by as much as 4% because of the coronavirus pandemic, Zillow says

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Will home prices fall as a result of the coronavirus pandemic? Zillow ZG, +0.24% says yes.

Economists at the real-estate company released a new report outlining their forecast of how the coronavirus outbreak could affect home prices and sales. The researchers outlined three different possible trajectories for the housing market, based on varying degrees of optimism regarding the recovery from the pandemic.

The medium view, in terms of positivity, suggests that home prices will drop between 2% and 3% through the fourth quarter of 2020. From there, researchers expected home prices to recover throughout 2021.

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But the more pessimistic forecast could make Americans looking to sell their homes anxious. If the coronavirus outbreak leads to a short-term recession, with a possible second wave of infections and more economic fallout, then Zillow Z, +0.30% expected home prices to drop between 3% and 4% and to remain depressed throughout next year.

Zillow’s expectations of falling home prices run counter to what other economists have predicted. Fannie Mae FNMA, -2.07% recently projected that home prices would actually continue to rise in 2020 despite a drop in sales activity.

See also: Americans will cut down on home remodeling projects because of coronavirus

All three of Zillow’s forecasts expected a decline in home sales between 50% and 60% from the beginning of the year through April, compared with the same period last year. Where they vary is on how much sales will rebound thereafter.

The most positive prediction suggests that home sales will claw back 19% toward the baseline every month, returning to 90% of the level set in the fourth quarter of 2019 by the end of this year. The most pessimistic forecast, meanwhile, suggested that home sales will only recover 5% each month, making for a much slower recovery.

To produce these scenarios, Zillow relied on macroeconomic forecasts from Goldman Sachs GS, -0.60% and the International Monetary Fund, as well as data from the S&P CoreLogic Case-Shiller home price indices CLGX, and the National Association of Realtors.

“While our internal and external data currently point to a bottom in real estate transactions at the beginning of April 2020, we are watching for signs of either a renewed contraction or other indicators of a slowing recovery,” the Zillow report stated.

A number of factors could complicate the real-estate market’s effort to bounce back from COVID-19. For instance, heightened volatility or worsening delinquency rates could suggest the economy has weakened more than was expected.

Also see: Coronavirus cases drop by up to 44% due to shelter-in-place orders, study drawing on CDC data shows

A lot is also riding on how the U.S. coordinates the economy’s reopening. “There are also a number of public health and/or policy risks that, if worsened, might warrant an adjustment of our probability weights and possibly the creation of a more pessimistic scenario to consider,” the Zillow report noted.

These include a lack of coordination among states in reopening their markets, false restarts in the economy and a continued shortage in COVID-19 testing and personal protective equipment.