The novel coronavirus has changed all areas of our lives over the last year, but it’s clear the economic implications of the virus are only now to become even more apparent. With national lockdowns and distancing, COVID-19 has upset the global economy, forcing unprecedented redundancies and company closures.
Experts believe we’re only seeing the tip of the iceberg in terms of the extent of harm the virus has had on economies. In the UK, the number of unemployed topped 1.62 million by the start of November while in the US over 60 million applied for unemployment benefits in the six months leading up to October – a figure greater than that of the 18-month Great Recession. Back in April, the United Nations stated that the pandemic could end up to 195 million jobs globally – a number that is proving depressingly accurate.
The impact on property prices and the market in general
Of course, as one would expect, mass redundancies and business closures on this scale are bound to have a wide-ranging impact on all areas of the economy and society as a whole. However, somewhat less expected is the generally positive effect COVID-19 has had on the property market. Through the virus, US prices have been consistently rising while the UK has even witnessed a mini-boom in property sales.
Why has property fared so well?
Logic would suggest that in times of economic uncertainty such as those created by COVID-19, there would be a general tightening of belts. However, quite the opposite has proven true with the real estate market. Experts suggest there are a number of reasons why, the most prevalent being the demand for housing has exceeded supply for many years.
Moreover, there will always be a first-time buyer coming through the system looking to purchase a new home – so there will always be a constant stream of demand. Bottom line – people need homes, regardless of whatever other economic uncertainties might exist.
Also, real estate has for years been considered a failsafe investment. While property markets constantly fluctuate, most people view buying a home as their greatest security in life and their biggest, most valuable long-term investment.
Will property prices continue to rise?
As with so many other aspects of COVID-19, it would be advisable to expect the unexpected. In the UK, it’s thought part of the growth of the real estate sector has been down to the country’s Chancellor of the Exchequer, Rishi Sunak, introducing a temporary cut in stamp tax duty on more expensive properties – making many vendors question if they’ll see a downturn when previous rates are brought back (currently scheduled for next March).
Meanwhile, in the US, real estate companies are also preparing for an almost-inevitable contraction in demand. As Richard Barton, the CEO of online property sales site Zillow, put it: “We can’t expect that kind of thing to continue.”
Nonetheless, the overall outlook still looks relatively buoyant and while Barton also predicts that sales are likely to peak as we go into winter – with a continuing reduction through 2021 – they should nonetheless remain higher than pre-virus levels.
Another online vendor, Zoopla – this time based in the UK – forecasts similar with an expected slowdown through the coming year but no reduction in house prices before the following year, 2022.
So, in general – and despite the predictions of an incoming recession (or even depression) – the overall picture for property markets remain surprisingly upbeat.
How a COVID-19 recession differs from those in the past
Previous economic recessions have had a hugely adverse effect on property markets in the past but this year the entire climate is vastly different. Through the pandemic, the number of people working from home has skyrocketed, making our houses more important to us than ever. Moreover, the restrictions caused by lockdown meant many of us spent a large chunk of the last year indoors – again, increasing the significance of our homes.
With remote-working predicted to remain common long after the virus has passed, most people’s work/life balance has changed significantly – with many experts predicting we will never again return to our old working practices and office-based routines. Indeed, an increasing number of employers have already stated they intend to continue to allow staff to work from home permanently. When factored in with record-low mortgage rates and the on-going desire of most people to get on (and stay on) the property ladder, it seems the property market may well weather the financial impacts of the virus better than other sectors of the economy.
Of course, only time will tell exactly how COVID-19 affects property in the future but, in the short-term at least, real estate appears to be one of the safest investments you can make – particularly given the uncertainty and lack of confidence in other markets.