Coronavirus has crashed real estate market:
The last financial crisis of 2008 crashed the real estate prices. The world has not yet fully recovered but we are facing the greatest crisis of human history in the form of “The Coronavirus Recession” caused by COVID-19. The world is upside down but this time we are short of bullets as interest rates are already 0% across the world. If the present financial crisis is worse than that of 2008, then real estate market will also be hit harder this time. Let’s review the aftershocks as Coronavirus has crashed real estate market.
COVID-19 has spelled another global recession; The Coronavirus Recession:
There is no vaccine to save the people from the deadly pandemic. The only solution is to lockdown the villages, towns, cities and countries. This has greatly reduced the economic activities across the world. The airlines have stopped flights, the stocks are down and crude oil price is in free fall. Nearly every sector is hit by the COVID-19. More and more companies are closing their business while laying off the employees. The world has slipped into another recession; The Coronavirus Recession.
How current recession will impact the housing market?
The economic condition of a region greatly impacts the real estate prices. Property prices increase due to the economic growth. This is because the economic boom creates good paying jobs and purchasing power increases. On the other hand economic collapse increases the unemployment and purchasing power decreases. Therefore property prices increase when economy booms and decrease when economy crashes. As COVID-19 has triggered the global recession so property prices are crashing worldwide.
How much property prices will fall worldwide?
Real estate transactions have nearly halted due to the novel COVID-19 as countries have been locked down. The real estate business will pick up once the coronavirus pandemic is controlled. But the real question is how much real estate prices will collapse. To find the answer we should review the Great Recession of 2008 that crashed property prices by 25-50% worldwide. This time property price will crash by 50% as unemployment will hit another record. Dubai property prices have already crashed by 40% in March 2020.
When house prices will recover?
After the real estate price crash of 2008, property price boom started in 2013. So recovery took 5 years. This was achieved by cutting the interest rates from 6% to 0%. But this time world is short of bullets as interest rates are already 0%. Property market was in bubble phase before the outbreak of the pandemic, so price correction was long overdue. As central banks around the world can’t pop-up the property prices due to 0% interest rates, so property price recovery will take more time.
Who are the winners and losers?
Every property price crash has winners and losers. Winners are the buyers as they buy homes at affordable rates whereas losers are the home owners as their homes values decrease. But this Coronavirus Recession has more losers than the winners. This is because not only the home values have collapsed across the world but purchasing power has also decreased. The winners will be the buy-to-let landlords as in future more people will be renting homes than buying.