2020 has been a rollercoaster of a year, to say the least, we have become accustomed to a new normal riddled with uncertainty. Our lives have drastically changed and we are wondering if things will get back to how they were before. The housing market has been no exception to this uncertainty and change, we’ve seen house price growth slump across the globe leaving many of us wondering whether 2021 is going to be the year that house prices bounce back.

 

Pre-Covid

Firstly it’s important to consider the fundamental factors that set house prices. Starting from a simple stance of supply and demand we expect prices to reflect the incomes based in an area or commutable from that property. This is called the income bid-price spread and has been the dominant traditional theory widely recognized by economists. That is that as more jobs there are in an area the more people there are with money to purchase housing. Another big factor affecting house prices that we’ve seen play a part, especially in recent years, is interest rates and access to finance. Again acting on the demand side of the equation in a similar way is that as people have access to mortgages they can afford to spend more on a house which pushes prices up. When interest rates are lower it makes larger loans manageable on lower incomes than previously would be as the monthly repayments get smaller.

 

United States housing stock has always been seen as a pretty safe deposit of capital by foreign entities, particularly those from unstable currency areas and those living with political risk. As long as this is true there is always going to be pressure supporting the housing market. The dollar being the global reserve currency, highly liberalized financial markets, and loose capital controls make American assets attractive. When the dollar loses value against other currencies it makes the price of American assets cheaper to foreign entities too, so those from abroad who were thinking of buying a second home in America will find their money goes further. Experts generally believe that even with these influences and distortions the overvaluing of real estate in the United States is modest at best.

 

Covid effects

As social distancing has been made paramount to prevent the spread of the virus the move to working from home has been accelerated at an unprecedented rate. The fact that a large volume of the workforce now no longer need to live anywhere near their place of employment spells a huge structural change in demand for housing. The suggestion is that prices in urban centers that host high concentrations of well-paying office work are going to see their value stagnate and fall relative to the rest of the market. As many people are laid off demand falls, businesses are delaying investment until there is some certainty too corporate purchases of property are being delayed which in turn dampens down demand. Since the global financial crisis banks have had their lending rules tightened and restrictions placed on how precariously they can balance their position. Chiefly relevant to house prices is the lack of leverage and risk of default now relatively absent compared to 2008 we can assume that a serious crash is very unlikely.

 

It’s hard to see a clear reflection of the effects to some extent as the volume of transactions slowed down during the height of the lockdown and would probably have been biased towards the distressed quick sales required by those hardest hit by the pandemic.

In the United Kingdom, the Chancellor of the Exchequer Rishi Sunak granted a tax break on the stamp duty paid on house sales on the first £500,000 ($646,000) of the property’s value to address the slowdown on the other side of the pacific. Famously the legal red tape and bureaucracy can make transactions very expensive to implement and any cutting back of this would help the market without making anyone worse off.  In any case, the housing market is structurally changing and new types of business are booming the house guys in Washington DC take advantage of a relator free model to name just one-way value can be added to property without commissions sucking money out of everyone’s pockets.

 

Post-Covid

Moving forward it is hard to know how much of the investment that could not happen because of lockdown is an investment that has been delayed or has been canceled because it could be the case that a large amount of activity has been pent up only to be released in 2021 in a similar fashion to what happened after the financial crash. On both sides of the equation, there are multiple factors pushing house prices both ways. Nobody intelligent can conclusively say which forces are stronger and ultimately predict a movement either way.

There is no doubt that the effects of the horrific start to 2020 have been hitting everyone pretty hard financially. Many people have been left unemployed which has made taking care of general costs like housing and food pretty difficult, especially due to the country’s poor welfare payment system. Because of the personal economic struggles that people are facing, they are less inclined to purchase unnecessary items and so many businesses are starting to feel the toll. Though all businesses are feeling the strain of the economic crisis that the country is currently facing, nobody is suffering more than smaller businesses, and here is why.

 

Government funding

The government has not completely ignored the struggles that businesses have started to face and so have begun to offer grants to businesses to ensure their survival during these difficult times. This may sound like a useful gesture, however, they haven’t been very thoughtful when giving out these grants. They have ironically given these grants to bigger businesses, such as Mcdonalds, that don’t even really need the support right now due to their ability to still offer their services to the public. Smaller businesses already don’t have the influx of cash that a lot of bigger businesses have, so without that government financial aid, they are basically just surviving out of their slowly dwindling savings.

 

No contact procedure

You also have to take into account that a lot of small businesses aren’t just retail businesses, but are businesses that offer a service. However, due to the current social distancing measures that are in place, lots of small businesses that offer a physical service are not able to operate. A good example of a business like this is a hairdresser that needs to make physical contact in order to complete the service.

 

There are also a large number of small businesses that require entry into the home in order to operate. So for example, pest control businesses such as yalepest depend on completing home surveys in order to complete their jobs. However, rules that exclude people from entering households make this a difficult task. Because of this, lots of businesses such as pest control, plumbers and decorators are really taking a hit and are even ending operations indefinitely.

 

Niche Businesses

Most of the businesses that we would consider to be ‘small businesses’ are usually labeled as so due to their niche appeal. These businesses already trade with a smaller amount of people due to their lack of necessity. An example of a business like this would be something a little odder like ‘Organic Home Fragrances’ or other businesses along those lines. Businesses like this are really being hit as their already quite small client list is being damaged by the economic issues that people are facing.

 

However, there has been more social outreach to save businesses that are a little quirkier, in order to maintain the character that they bring to certain communities.

 

Lack of postage opportunities

A lot of bigger businesses have simply decided to move a lot of their product sales online in order to keep their business afloat. This is an excellent idea for those that are able to do this but have however become a major issue for smaller businesses that can’t do so. Because people are trying to avoid leaving the house unnecessarily for safety purposes, the use of online shopping has only increased. Because of this, businesses that don’t operate online are being forgotten about. These businesses are usually the smaller local shops that simply don’t have the finances or resources to do so. These businesses are really struggling and so it may be worth considering giving them a little more support.