Q: I am wondering if you think housing prices will drop in the next three months or so. I am in the market and the agent suggested I rent for six months, but he really doesn’t think the prices will drop much in the $200,000-$250,000 range. I would plan to live there 5-10 years.

Kirsten

A: Forecasting is hazardous under normal circumstances, but it’s especially difficult right now with the economic lockdown. My default position is caution with money.

I reached out to Kelly Jameson, associate professor of finance and real estate at St. Cloud State University for some additional perspective. She framed the issue with three basic questions: How is the health of the market — meaning is there enough activity among buyers and sellers? How attractive is the money side of the mortgage equation? How will homes be appraised or valued?

Activity is shrinking. The housing market is taking a hit along with the rest of the economy. Realtor.com said its preliminary reading suggests home sales will be down 5% to 10% year-over-year in March. April will sport even bigger declines. Rising unemployment, falling economic activity and declining incomes trump lower mortgage rates. Lenders and appraisers are likely to be cautious with valuations. Home prices will head lower, although how far and for how long remains an open question.

“House prices will come under pressure and we expect some price declines later this year and early next, when home sales resume,” wrote Mark Zandi, chief economist of Moody’s Analytics. “Continued record low mortgage rates should also buoy housing demand once we are allowed out of our homes.”

That said, housing-market fundamentals are different from the period leading up to the home bust more than a decade ago. This time, low housing market inventory rather than speculative fever was the main factor driving prices higher, especially for so-called starter homes. The housing shortage will likely worsen, a trend that puts something of a floor beneath home prices.

The rapid plunge in the economy and the sharp rise in unemployment is horrible. Key to the homebuying decision at any time, but especially now, is an assessment of how secure your job and your income are these days. A reasonable formula is the more uncertain your income during the pandemic economy, the better is renting and saving the down payment, and vice versa — assuming you find a home you want at a discounted price.

Chris Farrell is senior economics contributor, “Marketplace”; commentator, Minnesota Public Radio.