COVID-19 will very certainly have a strong impact on Real Estate prices. While it seems inevitable, it’s also clear that housing markets throughout the world will be impacted very differently.
Some strong analysis are available already, in the U.S., Canada, Spain, Portugal to name a few. So what we can say already about the impact The Great Lockdown may have on real estate prices?
Global Impact: The Airbnb Housing Bubble Burst
Did you know that Airbnb has more than 7 million listings worldwide? In the fall of 2007, during a weekend when hotels were sold out during a conference in San Francisco, Brian Chesky and Joe Gebbia had the idea of hosting the first guests of AirBedAndBreakfast.com to make rent money. Fast forward to 2020, 7 million listings are available on Airbnb.com.
On Forbes, we learn that London is the global city with the greatest number of Airbnb listings, with “over 80,000 listings – and 55% plus of these listings are for entire properties.”
Just look at the graph below, from Statista. Of course, we can imagine that many properties owners from London, Paris, or even New York, will hold onto their properties. They won’t start selling simply because of two to four bad months! Will they? Hmm… this is where The Wall Street Journal analysis comes handy. According to WSJ, “Entrepreneurs built mini-empires of short-term rental properties, borrowing against revenue that’s now vanishing under coronavirus lockdowns”.
And have you seen the CancelRent movement in the United States? As unemployment soars across the country (30 million Americans have lost their jobs in 6 weeks), tenants are doing everything in their power to persuade the government to halt rent and mortgage payments (NYTimes).
However this is for long-term rent. So, what about short-term rentals? We can only imagine that what Forbes analyzed (The Airbnb Effect) is true in many markets. Especially true in the countries below, which see a direct economic impact from Airbnb as follows:
- United States: $33.8 billion
- France: $10.8 billion
- Spain: $6.9 billion
- Italy: $6.4 billion
- United Kingdom: $5.6 billion
Source: iPropertyManagement.com
Impact Per Country
United States
“Another U.S.-Wide Housing Slump Is Coming” (Danielle DiMartino Booth, Bloomberg) is the short version of it. Analyzing that “The coronavirus pandemic will cause many cash-strapped Americans to sell their homes, flooding the market with excess supply.”
Of course, not all markets within the U.S. will be impacted in the same way.
Canada
“Canadian Real Estate Prices Could Drop Up To 30%, Moody’s Advises Institutions” (BetterDwelling.com). Need we say more? Actually, I wrote several times already to relay the UBS analysis, which identified Toronto and Vancouver as two of the housing markets most at risk of a housing bubble in 2019.
Spain
In Spain, both UBS and Bankinter predict a drop of 6% only (Idealista). Indeed, although it might seem to be a weird excuse, the 2008 crisis is actually protective for house prices this time. As house price crashed by 41% during a period of 8 years (2008 to 2015), and recovered at a very moderate pace, Spain’s housing market is not as much at risk as some other markets.
However, some local markets (cities, regions) might be hit harder, especially the ones where tourism is vital for the local economy.
Property Prices and COVID-19 – Key Influencing Factors
Of course I won’t write about all markets, but think about these key factors, for your market:
- Impact of tourism on local economy?
- Strong savings, or not, especially for multiple-property owners?
- Percentage of properties on Airbnb?
- Unemployment rate
- Unemployment benefits: think about Turkey, where unemployment benefits are limited to €300 per person per month, whatever the salary (OECD)… this will weaken the economy, and real estate market
- Mortgage rates and mortgage conditions
Death Figures: More Than 244,000 Deaths
As we write this article, 244,000 people have died from COVID-19. Since we started writing about the coronavirus crisis, on March 12, the situation has changed drastically. On March 19, there had been “only” 207 deaths in the U.S., and the world was looking at China and Italy, topping the sad ranking with 3,000 deaths each (FBW). Sadly, coronavirus fatalities have now topped 67,000 in the United States, and topped 25,000 deaths in Italy, the UK, France, and Spain (see chart below).
Also, when we last analyzed the death figures on 12 April, only 13 countries had registered more than 1,000 deaths (FBW). While this figure is now 22 countries, as of 3 May.
