What happens to house prices after Covid-19?

It’s generally accepted there’ll be a negative impact on property prices next year after vaccines are all rolled out, but how long will it last?

Mark Keenan

With no less than three vaccines now en route, it seems Covid-19’s days are (hopefully) numbered and 2021 will finally show us the way back from the worst plague since the 1918 flu and a return to normal living. But in the aftermath of the virus, how ‘normal’ will that be? Will things really be the same again?

Certainly not for those families all over Ireland left with the tragic legacy of more than 2,000 deaths, while some sufferers will be left with permanent underlying conditions as a result of their bout with the virus.

Aside from penning us up indoors, locking up the pubs, creating mass unemployment and running up vast costs to the Exchequer, a stranger side-effect of the virus has been its artificial boosting of some sectors.

Amazon and big grocery chains made some serious hay. Anything DIY, gardening or home-improvement related surged on the basis that those holed up used the downtime (and the money they hadn’t spent socialising) making home improvements.

Another beneficiary of a freak boost was the Irish property market. Estate agents all over the country have reported brisk business since March on account of four key factors.

First, supply tightened as vendors decided to withhold their homes from market at a time when numbers of strangers walking through your home became an obvious issue.

Second, demand for property increased as home-hunters became more urgent in their search. Those with six-month mortgage approvals reacted with a sort of panic, both at the shrinking choice of property out there and at the notion banks might change their minds on lending and tighten up the purse strings at any moment.

There was also the fear among those with approval that they might lose their jobs and have to postpone buying. If they could buy a place, they realised it’s a years-long process for banks in order to get them out again. Chances are they’d pick up another job before repossession kicked in.

Fourth, Government measures have supported the market both directly and indirectly. From tenants protected to edicts that banks hold off on mortgage repayment failings, to the Covid payments that have enabled many to keep up with mortgage and rent commitments.

Then we saw a countrywide move towards home working and the real-time validation of its benefits has led to an increase in interest, and a surge in prices, for homes in rural towns and in more metropolitan rural parts of the country.

Two more ‘shoring up’ factors to consider is that Ireland was already in a housing crisis with a shortage of property in evidence, albeit not as bad as in previous years. This helped hold up prices.

Also, because of the housing crisis, most of those most immediately impacted by Covid-19 worked in sectors like entertainment, catering, travel and retail; all lower-paid sectors in which most employees had already been priced out of the market. Again, the fact that most of those affected were not in the market anyway at this point helped protect prices.

So what will happen to the Irish property market next year when Covid evaporates?

Many industry professionals privately admit that some sort of knockback is in the post for 2021. The difference among the estate agents I have talked to is whether they believe prices will slip slightly on a temporary basis or whether they will fall harder and on a more long-term basis.

Most are united in thinking we’ll start to experience the backwash from around the middle of next year.

There are two factors which could lead to a post-Covid price trough. The first is the overall effect on the world and local economies with the lifting of state protections and payments. A general lingering downturn in the economy means less jobs, lower salaries, less ability to buy homes and lower prices for sure. A lasting recession would cause gradual house-price slippage over a longer period and a greater fall overall.

The second and more immediate factor is the postponed vendors that have been built up since the start of the year. If we assume that one third of all vendors postponed selling in 2020, we can be almost certain that most of those will land in the market soon after the ‘all clear’ is given for Covid-19.

So in the same way that Covid’s arrival curtailed supply in 2020 and therefore held prices up through shortage, it’s departure is expected to bring a big increase of homes coming to market next year to the detriment of prices.

Personally, I’d expect that to happen in September, which is traditionally the peak time to place a home on the market for those choosing to sell in the second half of the year.

This is because I don’t think Covid will be cleared by the first few months of the new year, even with vaccines landing soon. Those selling in the first half generally like to come to market by late March or April at the latest in order to provide a sales campaign of reasonable duration before the summer lull. Even with a vaccine arriving at the start of the year, Covid-19 needs to be gone before early April to enable vendors to get into that first-half window.

Next, I do think people will want to celebrate a bit and let their hair down before moving straight into the trauma involved in selling a house. They’ll want a holiday somewhere sunny first. Which takes us to autumn.

Some agents believe the surge in positive sentiment and the ‘kick in the ass’ that Covid has given people to act on their long-held lifestyle wishes, might actually counteract the supply-end impact on prices to some degree.

What they’re saying is that enough people might want to change their lifestyle and move at one time to match or soften the higher level of supply.

Some too believe that ‘sick’ businesses finished off by Covid in the short term will be replaced by more vibrant ones in the longer run.

That the coming impact on property prices will be temporary is generally accepted, it’s a matter of how much of a downward impact there’ll be on prices and for how long?

And it might not be long. This week, Moody’s issued a report on property prices in Europe, stating that it believes house prices will be hit next year once policy supports are removed by governments. It says prices will be hit hardest in those countries and regions most reliant on tourism. It says reliance on social housing is likely to be increased in 2021, but affordability will worsen despite falling prices.

Moody’s report also estimated that Europe’s economy will bounce back, along with house prices in 2023.

Predictions of a fall of five per cent by Irish agents could stretch to 15pc in a worst-case scenario, with Dublin most susceptible before that bounceback.

So if you’re planning to sell, doing it sooner rather than later might make sense.

Conversely, holding out for cheaper could be a good strategy for buyers-to-be. But do heed that affordability warning from Moody’s. Lower prices are absolutely no use to you if you can’t get that mortgage to avail of them.

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