Will Real Estate Prices Drop after the Stock Market Massacre? – Chart of the Day

Medieval Houses
  • Corporate and private bankruptcy waves can push real estate prices down.
  • REITs in the US and Europe are underperforming the stock market.
  • People can still pay the rent for months, but not forever.
  • Are all these risks priced in?
  • Central banks provide support for real estate prices.

House on the countryside

The Beginning of the End for Real Estate Prices?

Stock markets are racing from their March lows, but what are real estate prices doing? In past crises, the real estate prices tanked after default (bankruptcy) waves in the corporate and private sector, a jump in unemployment. This crisis can end similarly. For example, new data show:


Britain’s house prices fell by the most in more than 11 years in May as the coronavirus crisis hammered the market, mortgage lender Nationwide said on Tuesday. Nationwide said its measure of house prices fell by 1.7 percent last month from April, the biggest decline since February 2009. In annual terms, prices rose by 1.8%, slowing from 3.7% in April.

(Reuters on Investing.com)


Surprise! In annual terms, prices rose? In the middle of an ugly economic depression? Maybe real estate markets haven’t priced in the crisis yet. Is this only the beginning? It depends on how long the crisis will last. Another bad sign is, REITs (real estate investment trusts) and other real estate companies are reporting plenty of tenants don’t pay the rent. For example, Federal Realty Investment Trust is collecting only 50-60 percent of the rents.


Approximately 54% of total May 2020 billed recurring rents have been collected to date, ahead of pace for April 2020 collections at April month-end. Approximately 57% of total April 2020 billed recurring rents have been collected to date.



Real Estate Prices in Europe Underperforming

Our chart shows the Dow Jones Equity All REIT TR index (REIT), an US index of the real estate investment trusts, and the Euronext IEIF European REIT index (REITE). For comparison, also the Nasdaq 100 index (NDX), the S&P 500 index ETF (SPY), and the broader European Stoxx 600 (FXXP) stock market index. The Nasdaq rose over eight percent this year, the S&P 500 is down six percent, and the European stocks fell 15 percent.

The REIT index underperformed the U.S. big-cap stock market with a 12 percent drop. While a 32 percent decline in European REITs is a more significant underperformance.

Chart: Dow Jones Equity All REIT TR index (REIT), Euronext IEIF European REIT index (REITE), Nasdaq 100 index (NDX), S&P 500 ETF (SPY) and European Stoxx 600 index (FXXP).
Chart: Real Estate Prices and Stocks. Dow Jones Equity All REIT TR index (REIT), Euronext IEIF European REIT index (REITE), Nasdaq 100 index (NDX), S&P 500 ETF (SPY) and European Stoxx 600 index (FXXP). (Tradingview.com)

But support, a tailwind for real estate prices, can provide the ultra-easy policy of central banks. Through the persistently very low or negative interest rate level, the monetary base expansion, the asset purchases. This policy of the Fed, the Bank of England, the European Central Bank, and the Bank of Japan won’t change soon. The Fed is expanding, better, exploding the monetary base. Strong support for all real assets like real estate, gold, farmland, also stocks. (Also read: Are We Facing Epic Inflation, Horrific Real Interest, and Brutal Gold Price Explosion?)

Conclusion? A High-Risk Industry

People lose their jobs fast in economic crashes, but usually many of them still have reserves. Employees and businesses also often receive government support. So, they can still pay the rent for months. An apartment, business unit, or workshop is often only endangered much later. The collapse of tourism can also generate selling pressure. Both in the hotel industry and by real estate units affected by the decline of bookings of Airbnb and other sharing services.

We don’t know how long the crisis will be and how deep. But property owners can still face longer suffering, much longer than 1-2 months. In the longer term, online retail businesses, online shopping may extend further and “brick-and-mortar” businesses shrink. (Brick-and-mortar means traditional street-side business, shops, offices, also banks. Offering products and services face-to-face in a physical store.) That may cause the decline of the demand for street offices, and a fall in all retail real estate prices.

The real estate industry seems perilous at the moment. Are all these risks priced in already?



I’m not a certified financial advisor nor a certified financial analyst, accountant nor lawyer. The contents on my site and in my posts are for informational and entertainment purposes and reflecting my collection of data, ideas, opinions. Please, make your proper research or consult your advisors before making any investment or financial or legal decisions.

(Photos: Pixabay.com. Cover Image by ArtTower from Pixabay.)

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