Under Water: How Big Will the Negative Equity Crisis Be, and Who is at Risk, in the Aftermath of the Coronavirus Crisis?   [open pdf - 2MB]

From the Summary: "Despite the apparent resilience of the housing market so far during the coronavirus crisis, there is a significant risk of large falls in house prices. However, available data suggests the unprecedented economic shock triggered by the coronavirus crisis has so far been associated with small rises in house prices. Indeed, the Halifax house price index increased by 3.8 per cent in the year to July 2020, taking the average house price in July to an all-time high on that measure. A key reason for this is this is likely to be the relatively small rise in unemployment in the immediate aftermath of the outbreak. This situation is very unlikely to continue, given the expected rise in unemployment: all recessions we have data for have led to falls in house prices. And in contrast to past recessions, during which the Bank of England has cut interest rates by an average of 5 percentage points, there is little scope for prices to be boosted by interest rate cuts, with policy rates close to zero. Reflecting these housing-market fundamentals, the Office for Budgetary Responsibility (OBR) has forecast a fall in house prices of 8 per cent in its 'central' scenario and up to 16 per cent in its 'downside' scenario."

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