COVID-19 dynamics and overheated markets

“Bubbles” in real estate markets are nothing new, for many years in many cities the growth of prices was guaranteed by the growth of construction and the interest of citizens in the urban lifestyle. And quarantine measures have provoked increased demand for urban real estate, especially – in capital cities, due to:

Remote work opportunities;
a shift in the value of offices to the home.
For the first time since the 1900s, residential real estate prices in suburban metropolitan areas have risen rapidly, but shifting priorities have not yet collapsed the market. And according to Lawrence Yoon, chief economist of the National Association of Realtors, such a boom will not be followed by a financial crisis, as was seen in 2006. Why? Tight inventory conditions and a slowdown in the rate of growth of the cost of objects by the end of the year will allow the cost of housing to match the level of income of the population. And in 2022, when real estate under construction becomes available for purchase, a new price increase can be expected.

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Real estate in Europe by Oldypak LP

In general, the growth was observed everywhere – positive growth showed almost all the capital cities of developed and wealthy countries.

Investors in overseas real estate need to be prepared for elements of uncertainty – the debt-to-income ratio continues to rise, and credit conditions softened during the pandemic are returning to early standards.

When you add in the social shifts and the reorientation of the population toward office work, it becomes much harder to predict the outlook for real estate markets. Today, we can speak specifically only about the short-term outlook, but experts Oxford Economics suggests that the fall will not be as critical as in 2006 will not bring a financial crisis.

It is very important to consider the various domestic incentives and benefits to buyers of real estate, which are present in the rich and developed countries. For example, in the U.S. and Britain the driving force was the low mortgage rates, along with a shortage of supply and high demand for large properties. Incidentally, the published outlook of British brokers says that local property prices are forecast to rise by at least 21% over the next 4 years.

Oldypak lp
Real estate in Europe by Oldypak LP

However, even with a serious drop in prices, reason for optimistic thinking remains – the rise in housing values in the global market coincides with an increase in the ratio of mortgage loans to GDP, which means that there will not be a serious gap with debt for facilities. Therefore, the current boom does not look as dangerous as earlier “bubbles,” since mortgages have been growing rather modestly, despite the acceleration.

Development of the German housing market
Rental rates are falling in Portugal