Despite the COVID-19 pandemic, housing prices are increasing
Gustas Germanavičius October 15, 2020
After the serious implications of the 2008-2009 World’s Financial crisis, many people considered investments in housing as high risk and likely to be impacted again in another Economic turmoil. Surprisingly, during the worldwide pandemic of COVID-19, the data, provided by the Economist in their recent article suggests the opposite. The real estate prices in most middle and high-income countries have picked up and risen at an annual rate of 5% during the second quarter (graph below).
Source: The Economist
There are a few reasons for that. First, it has been suggested by studies that real estate prices increase have a strong link with the falling interest rates. During the pandemic, the interest rate in the US and certain EU states has fallen. Secondly, due to the reason, that the other asset classes had their returns decreased, the landlords are willing to pay a price premium on the property. Lastly, as we have seen in Ireland prior to COVID-19 the shortage of housing, draws the prices up and creates a perfect environment for new real estate developments. The experience of the last recession and especially in Ireland, suggests that even when the economy recovers, construction lags behind. It may take more than a pandemic to shake the world’s largest asset class.
Other measures directly support the housing market. In Latvia as in Spain, the borrowers were allowed to suspend their debt repayments. An interesting data is that across the World, countries are recording the lowest foreclosure rates in decades.
Invelar’s founder Carles Seradell, runs a franchise network of real estate brokerages in Catalonia, Spain. He explains, that they have never in their history sold as many houses as they are doing it right now. However, buyers’ preferences have changed, while before Carles’ franchises have been selling most of its real estate in Barcelona, now the buyers are looking for houses in Girona and other cities in Costa Brava. A similar trend is currently observed in Lithuania, where people have urged to buy houses by the seaside and the development industry saw a significant increase in new developments in the countryside for a secondary house