Alt title: "Is there light at the end of the tunnel or is that an oncoming train …"
OPINION PIECE: I think it is fair to say that most people are hoping, as 2020 drags its weary way through its second half, that there is light appearing at the end of the 2020 tunnel. I certainly do but the (ever present) pessimistic side of me also worries that the light could also be that of some oncoming juggernaut.
When it comes to real estate, I think the ‘where you are’ and ‘what has been happening’ over the course of the last few months is going to make a big difference. Let’s start by comparing the position in a few different countries.
- In the U.S., over 30 states have suspended evictions. The federal government did the same (for a 120 day period) for federally subsidized housing and properties bought with a federally backed mortgage loan. Some of the major U.S lenders suspended mortgage payments.[1] Restrictions did impact listings – down 51% by the third week in April [2] - and the recovery has been slow with levels still down from those of last year.[3] House prices appear to have continued to rise.[4] However, it is hard to imagine that unemployment rates of 8.4% - 14.7% and an up-and-coming presidential election might not have an impact.
- In the U.K., evictions have been suspended and the government provided temporary mortgage relief.[5] With the imposition of ‘lockdown’, the market came to a near complete standstill that was reflected by a huge drop in listings (just under 90% on Zoopla by the third week in April [6]). The Nationwide house price index for May showed that prices fell 1.7% from the previous month[7] whilst Knight Frank are of the view that 2020 prices across the U.K will be down 7%.[8] Admittedly, the government has also provided a stamp duty holiday for properties purchased between 8 July 2020 and 31 March 2021; however, it remains to be seen whether this can tempt purchasers whose incomes have been lowered and/or their savings depleted. There is, of course, also ‘Brexit’ on the horizon.
- In Australia, banks paused mortgage repayments and imposed a moratorium on evictions. Australia’s residential market was already coming down from its 2017 peak before the virus. The early days of restrictions saw a drop in listings (c.30%)[9]; however, it seems to be generally agreed that the impact of the virus on house prices has been small (-0.7% nationally).[10]
- In New Zealand, loan-to-value restrictions were removed and some banks lowered the interest rate they use to test affordability (thereby increasing the amount that can be borrowed, even if they do ask more questions in the process).[11] The severe restrictions imposed early in the year resulted in an immediate and sharp drop in new listing volumes. Recovery was quick once these restrictions were lifted[12] but the recent imposition of further restrictions is likely to bring about another sharp drop and a ‘W’ shaped recovery.[13]
- Sweden, of course, has bucked the international trend (go Sweden[14]). Putting aside restaurants and retail (which did get government assistance), the real estate market in Sweden is notable for its steadiness during 2020; in fact, listings from January to September in 2020 differed very little from those in 2019.[15] But is that particularly surprising given Sweden did not impose any form of lockdown and allowed much of the country to operate on a ‘business as usual’ basis (albeit a lot of that business was done from home as opposed to the office)?
I am not professing this to be a comprehensive list. What the outcome is going to be can also not be comprehensively laid out, as these are unprecedented times and it is hard for anyone to give a forecast with any certainty. One statement that does ring true to my ear, however, is that whilst:
“…modern medical understanding about the spread of disease together with greater societal emphasis on saving lives, are likely to mean much lower death rates from COVID-19 than from the Black Death or the cholera epidemic in 19th century Paris [it is likely to create a] disproportionately greater economic impact”[16]
Further, it seems generally accepted that the reaction of many countries to this virus is going to cause the worst economic recession in living memory and, as said by Jonathan Hopper, CEO of Garrington Property Finders, “you cannot pretend the housing market is detached from it”. [17]
So, perhaps, aim for the light (whilst listening for any telltale noises that might indicate an oncoming train), and remember that there are silver linings to every cloud: no stamp duty, a lower interest rate, relocating to Sweden[18] or just proving to yourself - and everyone else - that you can embrace change and challenge through innovation.
References:
1. COVID-19: Global Real estate implications, JLL Research, 19 April 2020
2. Financial Times, ‘Buyers push for discounts in distressed property markets, George Steer, 5 June 2020
3. A Study of Market Recovery in the U.S, Sweden and New Zealand’, Mike DelPrete, 10 August 2020
4. BBC, ‘Corona virus may have huge impact on property markets, Jonty Bloom, 11 June 2020
5. COVID-19: Global Real estate implications, JLL Research, 19 April 2020
6. Financial Times, ‘Buyers push for discounts in distressed property markets, George Steer, 5 June 2020
7. BBC, ‘Corona virus may have huge impact on property markets, Jonty Bloom, 11 June 2020
8. Where next for UK residential transactions and prices, Knight Frank research, 12 May 2020
9. Core Logic, ‘The Relative Resilience of Property Values’, Eliza Owen, 23 April 2020
10. ABC News, ‘How bad is COVID for house prices compared to other great crashes of history’, Benjamin Gubana, 10 July 2020
11. OneRoof, ‘Covid-19 lockdown: Nightmare returns for Auckland’s housing market’, Catherine Masters, 11 August 2020
12. ‘A Study of Market Recovery in the U.S, Sweden and New Zealand’, Mike DelPrete, 10 August 2020
13. OneRoof, ‘Covid-19 lockdown: Nightmare returns for Auckland’s housing market’, Catherine Masters, 11 August 2020
14. Being married to a Swede, I give myself the liberty of being biased
15. ‘A Study of Market Recovery in the U.S, Sweden and New Zealand’, Mike DelPrete, 10 August 2020
16. Covid-19 and housing: while prices may fall homes will remain unaffordable, LSE Comment by Paul Cheshire and Christian Hilber, 6 May 2020
17. Financial Times, ‘Buyers push for discounts in distressed property markets, George Steer, 5 June 2020
18. It is a very nice place
