What Will Happen to House Prices During Coronavirus
The Coronavirus pandemic is forcing society into a shutdown and the economy into meltdown. Recessions often start with a trigger and unless we can quickly recover from this outbreak then it seems likely that we are also facing the start of the next global recession. The circumstances of being forced into isolation means that businesses are having to at best rearrange the way they work and at worst close their doors. With many people being left uncertain about getting their next pay check and people being told to stay at home new transactions in the property market may come to a halt. A global recession may soon follow and this would likely be the start of a downfall for property prices. The extent to how far property prices will fall will depend on how severe and prolonged this next recession will last.
How Severe will the Next Recession Be?
Recessions are of a cyclical nature and we have seen that historically a global recession has happened around every 10 years. It needs to be considered that a recession was probably already on the horizon regardless of the virus outbreak. In 2001 the dot com bubble burst and in 2008 we had the sub prime lending crash, a global shutdown of our economy seems to be more extreme. A recession is usually caused by a trigger and the extraordinary circumstances that we are currently experiencing is unprecedented. With the economy being forced into a global shut down the big question now is how long will this Coronavirus outbreak last? If we can get life back to normal in the next couple of months then this may just be a blip on our economy. However, if these restrictions on normal life continue for much time longer than we may experience a prolonged economic downturn that would more likely resemble a wartime depression.
Are We Officially in a Recession?
No, the official working definition of a recession is two negative quarters of growth. The collapse of the stock markets, closures of business etc. have happened far quicker than ever before. Under the current circumstances the time it takes to officially measure a recession hasn’t happened so due to how fast the current circumstances have happened, no official measures could appreciate that the recession has already begun.
How Much Did House Prices Fall in the Last Recession
During the first year of the 2008 recession house prices fell almost 16% which was also 18% lower than the previous high from 2007. History shows us that it’s very possible for house prices to fall around 20% in a recession. The current circumstances of a virus outbreak seem to be far more severe than previous reasons for why the world fell into recession so the impact may be greater. Typically, property prices don’t fall overnight so it may take some time until prices fall lower, for example in the last recession prices fell for a consecutive 14 months. If the world can quickly overcome the virus outbreak then prices may not have enough time to fall as much as they did in the last downturn.
The chart below shows the downfall and recovery since the 2007 recession.
The quicker we can tackle Coronavirus then the more likely we are to avoid a recession, however the wheels may have already been put into motion and a recession could be inevitable. On a positive note, the death toll has fallen in Italy for two consecutive days. This is a positive sign, and news that we have similarly seen from China. It’s certainly an indication that our national lock down could be the effective measure that’s needed in tackling this situation.
If you are a homeowner concerned about meeting your monthly mortgage payments then please see our article about the Financial Help the Government are Offering to Homeowners during Coronavirus
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