The coronavirus outbreak, which is turning into a global pandemic, is already triggering a housing market crash across major Asian economies.
The U.S. housing market saw strong growth in January, with a 7.9% increase in new home sales . The negative effect coronavirus is imposing on all types of assets exposes the U.S. housing market to all sorts of risks.
Over the past two weeks, the sentiment around the potential impact of coronavirus on the global economy has noticeably changed.
Billionaire philanthropist Bill Gates, who previously predicted a viral virus outbreak like coronavirus to occur in 2019, said COVID-19 could turn into a one-in-a-century pandemic.
Concerns about the coronavirus epidemic across Europe and Asia have caused panic in the global financial market, regardless of the asset class.
Gold, for instance, plunged on Friday despite being a safe-haven and risk-off asset.
Assets uncorrelated to the stock market such as bitcoin also fell substantially in a short period of time.
The housing market, which investors tend to describe as one of the two “real assets” alongside gold, has not been able to escape the coronavirus effect.
Housing markets in Hong Kong and Thailand have seen a clear decline in demand since late January, as buyers from China pulled out and domestic demand started to decline.
Real Estate Affairs, a housing market consultancy, said that it expects foreign demand for real estate in Thailand to “disappear” in the first half of 2020.
Data show a similar situation in Hong Kong, South Korea and Japan.
Prices of Hong Kong properties, which have not shown any signs of a slump over the last decade due to strong demand from mainland China, started to fall steeply for the first time since 2013.
Since May 2019, the square foot cost of Hong Kong property has declined by around 11% in key regions.
Buyers from China have stopped acquiring properties in key U.S. cities such as New York since as early as June 2019.
The allure of American properties and their strong price performance didn’t drop off; rather, the capital controls imposed by the Chinese government made it difficult for Chinese buyers to spend in the U.S. like before.
That being said, the situation affecting Chinese buyers isn’t the primary issue facing the U.S. housing market. Strong home sales in January were driven primarily by domestic buyers. It’s this segment, along with local investors, that could cause the next major market headwind.
With rapidly declining appetite from local investors towards both gold and high-risk assets like stocks, the demand for housing is also expected to decline, given its correlation with gold.
If high levels of selling by investors across all asset classes continue over the next several months, the housing market is anticipated to see a pullback.