“The specter of a global recession has haunted housing markets for years. Yet in the midst of the current pandemic-triggered shock, this fear has so far turned out to be unfounded. Despite the sharpest global economic downturn in more than 60 years, house prices have actually accelerated in the last four quarters. Price increases in the cities UBS analyzed have accelerated in the last four quarters, despite the global recession. Only four cities recorded negative annual price growth rates – the last time there were fewer cities with negative price growth was 2006. UBS sees three reasons for the resilience of housing markets in the first half of 2020, despite the global pandemic. First, home prices are a backward-looking indicator of the economy, which therefore react with a delay to economic downturns. Moreover, the number of transactions declined in most cities in the second quarter of 2020 compared with the previous year, complicating price formation and reducing the validity of observed prices. Second, the majority of potential home buyers did not suffer direct income losses in the first half of 2020. Credit facilities for companies and short-time work schemes mitigated the fallout from the crisis, supporting employees’ housing affordability. Third, governments helped homeowners in many cities during the lockdown periods. Housing subsidies were increased, taxes lowered, and foreclosure procedures suspended.”

“A time to sell?

The current cities at bubble risk seem to be weathering the coronavirus crisis relatively well. The local economies of Munich, Toronto, and Hong Kong will likely recover quickly. But even in the absence of a broad market correction, the potential for widespread capital gains seems depleted. This is of particular importance for buy-to-let investors as price-to-rent ratios have reached a record-high (i.e. yields are low) and rental growth is uncertain. In this environment, selling properties warrants consideration, as investors are likely to find assets with better risk-return characteristics.” (UBS study published November 2020)