The resilience and realignment of house prices in the era of Covid-19*

Abstract

Purpose: The article analyzes the effects of the COVID-19 pandemic on house prices. Design/Methodology/Approach: We start by discussing the possibility that house price indexes may not fully incorporate the effects of the pandemic as of yet. Against the background of the pandemic, we then analyze economic and behavioral effects affecting house prices. We also discuss how the linkages between tourism and house prices have been affected. We further present evidence of an emerging shift in preferences from urban locations to more peripheral ones. Findings: We report variance in the evolution of house prices across countries at the onset of the pandemic, with locations depending heavily on tourism showing slower price appreciation while appreciation has firmed in other places. We argue that the resilience of house prices is due not only to the low interest rate environment and government efforts to support firms and households, but also behavioral factors. In some locations, the price of condominiums has declined relative to the price of detached houses. This could indicate that wealthier households are seeking more space and larger units as a result of the crisis. There is also evidence of a downward pressure on rents, leading to increased price-rent ratios in the U.S. Originality/Value: By considering both economic and behavioral factors, this paper provides for a better understanding of the resilience and realignment of house prices at the onset of the COVID-19 pandemic.