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COVID-19 Pandemic May Not Have a Significant Impact on Long-Term Home Values in Nation’s Largest Metros

Although the United States has seen deadly pandemics in the past, the economic hit from the COVID-19 outbreak is largely unprecedented. Because of this, It’s difficult to predict the long-term impact the coronavirus crisis will have on the U.S. economy and, specifically, on housing markets across the country.

The lingering economic uncertainty has led some to draw comparisons to past financial downturns like the Great Recession. As a result, homeowners may be wondering how their home values will fare in the long run, and whether or not the housing market will face a decline like it did in the last recession.

While it is impossible to know for certain, this comparison to the Great Recession may not be entirely accurate. Unlike a standard recession, including the last one, the economic downturn caused by COVID-19 isn’t the result of a gradual weakening of the economy. Instead, it is the result of a sudden non-economic event that has put people out of work and caused businesses to shut their doors.

In this way, the downturn caused by COVID-19 has much in common with those that are caused by natural disasters, which are also non-economic events that can trigger sudden shocks to local economies. That’s not to say that the current coronavirus crisis is exactly like a natural disaster, especially considering that natural disasters tend to end relatively quickly, while the COVID-19 pandemic’s end date is currently unknown. Nonetheless, the economic similarities may indicate that the long-term impact on home prices might not be as severe as we’ve seen in previous downturns like the Great Recession.

With the comparison between the COVID-19 pandemic and a natural disaster in mind, imperfect as it is, LendingTree looked at how major natural disasters declared by the federal government and cataloged by the Federal Emergency Management Agency (FEMA), have impacted home prices over the last 10 years in the nation’s 50 largest metros. We then ranked each metro based on its average home-price growth one year after a natural disaster in order to get a sense of how home prices in different metros behave in the face of sudden, short-term economic shocks.

Key findings

  • Across the nation’s 50 largest metros, home prices tend to remain almost the same — and even grow slightly — in the months following a natural disaster. Three to six months after a disaster, prices appear to stay relatively stable and even grow some in some areas. Within a year of a disaster, home prices tend to grow an average of 2.5%.
  • The metros that see the most robust home-price growth following a natural disaster are Denver, Phoenix and Salt Lake City. In these three metros, the average one-year growth rate following a natural disaster is 8.5%, compared to an average of 2.5% across all 50 of the nation’s largest metros.
  • The metros with the smallest home-price growth following a natural disaster are Chicago, Milwaukee and New York City. On average, all of these metros see a negative growth rate in home prices one year after a disaster. This doesn’t necessarily mean that these metros will have a more sluggish recovery from the COVID-19 pandemic than other metros, but it does indicate that, statistically, natural disasters have had a more profound impact on home prices in these metros than elsewhere.
  • The average metro featured in our study was hit by 11 natural disasters over the past decade. While these disasters are unlikely to have a serious impact on long-term home values, they could still cause short-term problems for homeowners.

Metros with the highest average home-price growth one year after a natural disaster

No. 1: Denver

  • Average home-price change three months after a disaster: 1.90%
  • Average home-price change six months after a disaster: 4.00%
  • Average home-price change one year after a disaster: 8.97%

No. 2: Phoenix

  • Average home-price change three months after a disaster: 2.35%
  • Average home-price change six months after a disaster: 4.26%
  • Average home-price change one year after a disaster: 8.46%

No. 3: Salt Lake City

  • Average home-price change three months after a disaster: 1.16%
  • Average home-price change six months after a disaster: 3.19%
  • Average home-price change one year after a disaster: 8.04%

Metros with the lowest average home-price growth one year after a natural disaster

No. 1: Chicago

  • Average home-price change three months after a disaster: -1.64%
  • Average home-price change six months after a disaster: -3.09%
  • Average home-price change one year after a disaster: -5.22%

No. 2: Milwaukee

  • Average home-price change three months after a disaster: -1.02%
  • Average home-price change six months after a disaster: -1.95%
  • Average home-price change one year after a disaster: -3.67%

No. 3: New York City

  • Average home-price change three months after a disaster: -0.43%
  • Average home-price change six months after a disaster: -0.73%
  • Average home-price change one year after a disaster: -0.68%


Methodology

LendingTree analyzed how home prices behaved, three months, six months and one year after a natural disaster took place in each of the nation’s 50 largest metros. By using this data, LendingTree was able to study how natural disasters impact home prices.

By comparing the COVID-19 pandemic to a natural disaster, LendingTree was able to draw conclusions about how the coronavirus crisis could impact future home prices. As stated above, it is important to note that our study is not meant to draw a 1-to-1 comparison between the COVID-19 pandemic and a natural disaster. Instead, the study is meant to shed light on how home prices tend to react to sudden economic shocks like those caused by natural disasters.

The natural disaster data used in this study comes from the Federal Emergency Management Agency (FEMA), which lists all of the major natural disaster declarations by county in the U.S. over the past several decades. Disasters that began and ended on the same day were counted as one, even if they were cataloged twice by FEMA.

Furthermore, disasters such as gunfire and explosions were also excluded because this study focuses on weather-related disasters. Home-price data was taken from the Freddie Mac Housing Index.

LendingTree research analyst Jacob Channel contributed to this study.

 

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