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COVID-19. House prices. Disaster or is there a silver lining?

Thomas Pritchard

March 24, 2020

Thomas Pritchard is director at Charter HCP

On Saturday, This is Money ran a piece that suggested that house prices would drop 20% as a result of coronavirus and that covenants would be breached and that some borrowers would start to experience negative equity.

They were pretty doomsday about this and the implications for the market and the general economy going forward.

But is this real? Let’s actually think this through.

1. Nominal house prices over the period will at best stay still and at worst soften as a result of the perception that the economy is tanking and that people who were previously in the market will be dropping out on the basis that they no longer have jobs.

2. The actual price levels however will be dominated by a lack of transactional volume. It is normal and reasonable to assume that most sales will go on hold as a result of simple transactional issues (funders and lawyers not being at their desks and, in particular, valuers on lockdown that would normally be out valuing properties)

What this means is that whilst the nominal prices are going down, because transactional volumes are so low, no actual losses are being crystallised.

Now fast forward to 14 weeks from now when the restrictions are lifted:

1. The whole market is going to be awash with cheap money from governments that have unleashed a tidal wave of quantitative easing on the marketplace.

2. As soon as the restrictions are lifted, the entire leisure industry is going to receive a ‘nitro boost’ as the world gets out there to catch up on three months worth of drinking, football, theatres, cinemas, meals out, travel and partying that they have missed.

A prominent hotelier client of ours that I spoke to today is sold out of tour operator bookings starting second week in June onwards and is expecting the season to last at least a month longer than normal as people try to get away. This will drive jobs back to the economies of Europe in a very forceful fashion.

3. Having looked at the same four walls for 14 weeks, the first thing that people will want to do when the restrictions are lifted is to move house!

With all this being the case, we anticipate a massive upswing in house prices and sales volumes in the period immediately after restrictions are eased.

With this in mind, the best thing that developers and other property professional can do is to be ready and to get their projects moving because as soon as all this is over, the number one weekend past time for many adults will be house viewings!


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