The specter of a global recession has haunted housing markets for years. For a vast majority of households, housing is a crucial stepping stone on the path to reaching their financial lifetime goals and an important vehicle for passing on wealth to later generations. As such, housing is an important component in the Longevity and Legacy strategies within the Liquidity. Longevity. Legacy. approach to wealth management.
Yet in the midst of the current pandemic-triggered shock, the fear of a housing market downturn 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, supported by governments’ fiscal support and central banks’ monetary stimulus.
According to the latest UBS Global Real Estate Bubble Index, Munich and Frankfurt are currently the major cities with the most distinct bubble risk assessments globally. Prices are falling in only four cities in our survey; the last time there were fewer cities with negative price growth was 2006.
The current acceleration is not sustainable, in our view. Rents have already been falling in most cities, indicating that a correction phase in house prices will likely emerge when government subsidies fade and pressure on household incomes increases. For the longer term, the coronavirus pandemic has also called into question the growth prospects for housing in urban centers, given the widespread adoption of home working.
But housing is an illiquid, indivisible bulk asset with high transaction costs, meaning it can be difficult to adjust your exposure to it easily. Against this backdrop, we recommend investors consider a number of actions: