Nº 20-121: The Resilience and Realignment of House Prices in the Era of Covid-19

This article highlights some of the qualitative effects of Covid-19 on housing markets, which could be incorporated in the housing curriculum. We start by discussing why house price indexes may not fully incorporate the effects of the pandemic as of yet. We report variance in the evolution of house prices across countries, with locations depending heavily on tourism showing declining house prices while prices elsewhere have generally continued to increase. We argue that the resilience of house prices largely owes to the low interest rate environment and the smaller relative effect of the pandemic on upper income households, but also to behavioral factors. In some locations, the price of condominiums has fallen relative to the price of detached houses. This could indicate that wealthier households are seeking more space and more socially distanced detached homes in response to the pandemic. Likely reflecting how the pandemic has disproportionately hurt lower income households, there is also evidence of downward pressure on rents, which also has contributed to increased price-to-rent ratios in the U.S. By considering both economic and behavioral factors, this paper provides an overview of the resilience and realignment of housing markets at the onset of the Covid-19 pandemic.