Covid-19’s Effect On Real-estate Prices

The novel coronavirus, and in particular the lockdown measures that came as a response to it, have affected just about every sector of the economy in one way or another. The property market has taken a considerable hit, with viewings and moves being banned for months. The long-term consequences of all of this are difficult to predict, as much of it will depend on the actions of the government, and broader developments in the battle against the disease.

How do we judge house prices?

When we consider how much a house (or anything else) is worth, we tend to look at what similar properties have gone for. This process is formalised through regular reports from organisations like the Land Registry in the UK and from online services like Rightmove. But when these services have no data to refer to, the price of any given house becomes more difficult to predict.

Is this a repeat of 2008?

The global financial crisis which struck in 2008 was, to put it in simple terms, the result of a lack of credit. The coming global recession is, by contrast, caused by a disease. So, while the two recessions might look the same, they’re caused by entirely different things, and thus the way they ultimately develop is likely to be different.

Demand for housing in the UK has been restricted by post-Brexit uncertainty for the four years since the referendum. Interest rates are at record lows, and there’s a fairly even split between supply and demand in the housing market. As such, there’s reason to be cautiously optimistic. 

Economic Outlook

When people don’t have jobs, they’ll be less willing to buy house. Moreover, lenders are unlikely to approve mortgages for people who’ve been laid off. The UK government’s job retention scheme will go a long way toward softening this blow – but given the damage being inflicted by protracted lockdown, some job losses are all but inevitable. This will suppress demand, and in turn deflate house prices. While investors are still able to buy and sell stock thanks to online services, the broader effects of the downturn may prove to be inescapable.

Expectations among Buyers

If buyers believe that their purchase is going to be cheaper in six months’ time, then they may well hold off making it – especially if they’re first-time buyers who don’t have an asset of their own to offload. This will again force down prices, as it’ll put pressure on the selling parties. It’s a form of self-fulfilling prophecy.