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Corona Virus and Housing Market

With everybody talking about the corona virus, we have been asked what effect it will have on the housing market. The honest answer is that we do not know and as you already know, we are not in the business of speculating. We deal with the interpretation of known facts and we currently know very little about the course of the covid-19 viral infection wave.

The facts we can refer to concern past pandemics of a similar nature. These include

  • 1918 - The Spanish Flu (H1N1) - killed between 20 million and 100 million people of all ages (figures are very imprecise)

  • 1957 - The Asian Flu (H2N2) - killed about 2 million people, the majority elderly

  • 1968 - Hong Kong Flu (H3N2) - killed over 1 million people, the majority over 65

  • 1997 - Bird Flu (H5N1) - killed 352 people

  • 2009 - Swine Flu (H1N1) - killed more than 18,000 people

The symptoms of corona virus infection are similar to seasonal flu but the mortality rate may be higher. Though the vast number of infected people recover, it becomes lethal quickly in certain cases. At the moment far more people die each day of seasonal flu than the corona virus, because it is widespread throughout the world and very infectious. There are between 3 million and 5 million serious cases of seasonal flu each year of which about 10% are fatal. We pay almost no attention to seasonal flu because it has been around all our lives.

The Spanish Flu pandemic of 1918-9 is the most recent example of a very deadly worldwide disease flaring up. So far the signs are that covid-19 is infectious to a similar degree, but much less deadly. Estimates of the number of people who went down with the Spanish Flu are in the range of 500 million, about 25% of the world population at the time. The number of deaths is estimated at between 5% to 20% of those infected. 675,000 of these deaths were in the USA. The origin of the virus remains unknown. We do know it had very little to do with Spain.

One major difference seems to be that the Spanish Flu hit the young and working population hard, rather than picking off the frail and elderly like most diseases. The workforce was decimated (in its literal sense) and many families lost breadwinners. The vast majority of people who have died from covid-19 are over 60 and many are over 80. The primary effects are therefore on people beyond working age. The Spanish Flu reduced the working population and led to a significant increase in average wages in the year that followed.

For the corona virus, it is the secondary effects of the disease that are most impactful on the economy – market panic, reduction of travel, slowing of production and cancellation of events.

This is the first time a pandemic has had a dramatic and instant effect on stock markets. In the past the impact on markets has been less obvious. For those interested, here is a study from 2006.

In theory, housing should be relatively unaffected compared with travel and tourism. However a widespread economic slowdown is never a good thing and home builders’ stocks have tumbled over the last week along with the rest of the stock market. Whether this is an impulsive overreaction or not is yet to be determined.

When stock markets go down then the luxury market tends to slow down. However it has been running at a record pace over the past 4 months, so a slow down would not be unusual anyway. The rest of the housing market is not usually affected by the stock market. However a general economic slowdown would be felt, should it take place. At the moment the Greater Phoenix housing market is super-heated, so it would take a lot of change for it to cool down to normal. We see no sign of this at the moment, but you can be sure that we will report any change the day we see it.

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