During 2000-2003 the US economy was impacted by multiple negative forces including a recession, a 49% decline in the S&P500, and the shock of 9/11, but US house prices grew at a 9% annual rate during this period. Thus, macro-economic distress needn’t always lead to falling home prices. However, we think the present situation differs from that of 2000-2003 in two respects:

(1) during 2000-2003 unemployment rates peaked at 6% while our Economics team sees unemployment reaching 9% in the coming quarters

(2) 30-year mortgage rates fell by 300bp during 2000-2003 but currently have less room to compress.

On net, we think the strong positive and strong negative forces affecting the US housing market will lead to a 2% decline in national average home prices in 2020.