Joan Carles Amaro (Esade): “The crisis will cause a drop in family income and make housing less affordable”
The crisis caused by the pandemic will make housing less affordable if the worst forecasts for a fall in GDP (15% in the worst case) are fulfilled. Joan Carles Amaro, lecturer at the Esade Department of Economics, Finance and Accounting, explained that the worst recession since the crash of 29 is predicted in the most pessimistic scenario, and this would cause a jump in unemployment and a “slow recovery that could last until 2023”. “This will directly impact on the disposable income of families, which will not rise at the same pace as housing," he warned.
Amaro explained that the property cycle has four phases: deceleration, contraction, stabilisation, and expansion. Recent data from the property market in the pre-Covid scenario already pointed to Spain entering the deceleration phase with a decline in demand for housing. "With the health crisis, the property clock has jumped forward (at 3 o'clock it will be 6 o'clock) and we are moving more quickly towards the contraction phase", he said.
The lecturer does not see the same parameters being repeated as in the previous recession. “At that time there was uncontrolled demand and irrational prices. There was a lot of financing and buyers paid regardless of asking prices". In contrast, he points out that the lack of credit is currently acting as a brake so that prices do not shoot upwards and another property bubble is produced. Prices are sensitive to supply and it is not easy for supply to change in the short term", he said.
In a more optimistic tone, he points out that "interest rates are at record lows and we are entering a zone of falling prices", which could mean "green shoots" for the property sector.
Slight trend towards a decentralisation of primary residences
The crisis will not affect all housing sectors in the same way. Amaro considers that it is wrong to speak of a single property market, since its changes are usually very local and dependent on the supply and demand variables of each area and each type of housing.
For example, as the lecturer commented, "the nursing home sector will not be the best performer". However, in the residential market "the primary residence – as it is a vital need – is more stable than the weekend home market both in performance and demand". He points to a slight trend towards decentralisation, with well-connected cities with services and good residential neighbourhoods being sought as an alternative to the major cities. Although he adds that: "this will be a slow process because many urbanites are accustomed to the advantages of major cities”.
buyers represent a vital need. He considers that “potential demand may change little, but the number of able buyers may vary” as first-time buyers include many potential buyers (young people and single-parent families) who are vulnerable to the ups and downs of the economy.
In terms of buyers moving up the property ladder, the lecturer believes that "after the quarantine, people will give greater importance to residential quality", but it is a market that also "reflects the uncertainty of the economy, and so buying decisions may be postponed," he argues. The same will happen with the purchase of holiday and weekend homes.
Safe haven for investors
For investors, Amaro points out that "property can benefit from the poor performance of alternatives, such as shares or bonds, as well as from a drop in prices. He emphasises that "the property sector is a safe haven because price volatility is lower".
Finally, he commented that the retail sector is one of the most volatile: "as shops have been closing and online shopping has increased, it is possible that some businesses will close". Other sectors such as the hotel sector, "will have to adapt properties to the security measures demanded by the health authorities and this will lead to a fall in prices," he concludes.
