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Economic Research: Government Job Support Will Stem European Housing Market Price Falls

Economic Research: Government Job Support Will Stem European Housing Market Price Falls

Chart 1


As the COVID-19 pandemic has taken firm hold in Europe over the past few months, the economic environment has changed dramatically. What we considered merely downside risks earlier this year have quickly become our new economic baseline forecast (see "Europe Braces For A Deeper Recession In 2020," published April 20, 2020, on RatingsDirect). We have therefore updated our outlook for European housing markets to take into account the material change in the macroeconomic environment (see table 1).

This year, Europe faces the steepest recession in a lifetime. At the same time, the recovery that we expect for 2021, albeit gradual, will be much faster than a typical cyclical upswing, and notably stronger than the recovery from the global financial crisis.

What does this mean for European housing markets? Transactions have collapsed during the lockdown period, and price signals are heavily distorted and almost meaningless during this time. Only later this year, when we see more easing of the containment measures, will the damage to the market become more apparent. By then, activity on the housing market is likely to still be weak initially, as it takes time for unemployment to recede, and those in employment will continue to worry about job security and weak wage growth.

Table 1

European Housing Market Forecasts
Nominal prices, % year-on-year change in Q4
2017 2018 2019 2020f 2021f 2022f 2023f


3.6 2.6 4.8 (1.4) (0.7) 2.8 2.2


3.2 3.4 3.7 (1.4) (0.5) 2.5 2.3


6.1 6.1 5.6 (1.2) (0.4) 3.9 3.4


11.9 7.2 1.0 (3.5) (0.5) 4.0 3.5


(1.2) (0.5) 0.3 (3) (1) 0.0 0.5


8.5 9.1 6.3 (0.7) (1.3) 4.7 4.1


10.6 9.4 8.9 (2.5) 1.1 6.0 5.0


7.2 6.7 3.7 (3.2) 1.5 5.0 3.3


4.0 3.4 2.4 0.5 1.5 2.4 2.0


4.6 2.4 1.6 (3) 0.0 3.5 3.8
f--Forecast. Source: S&P, OECD, Hypoport, Wüest Partner.

Some households will be forced to sell, some will not be able to afford to buy, while even some of those who could afford to buy, will put off purchases. Nevertheless, we do not expect an outright collapse in house prices in Europe. For this to happen, a substantial increase in unemployment would be required, when many households are forced to sell just at a time when there is little demand. However, governments across Europe were swift to deploy support packages in response to the economic crisis. Most important among these are large-scale job-retention schemes, such as Germany's "Kurzarbeit" (reduced working hours). Through these schemes, governments provide payroll subsidies to businesses so that they can retain workers. So far, the uptake has been considerable, materially limiting losses of jobs and incomes. This, in turn, will contain the downward pressure on house prices, in our view.

However, we do expect some countries to be harder hit than others. In countries in which the pandemic has wreaked more damage, or in which government support to households is less generous, job and income losses will be greater, and house prices will fall further. Italy is once such example. Conversely, prices are likely to fall less in markets in which housing supply is short, or where institutional investors play a more significant role. This is because any pent-up demand that becomes active will curb potentially stronger price declines, or because investors are likely to continue to view housing as a relatively profitable investment against the background of now even lower yields on safe assets. This applies, to varying degrees, to the Swiss, German, Irish, and U.K. housing markets.

Where construction activity was halted due to the lockdown, supply shortages should worsen in the medium term. Capacity constraints in the homebuilding sector, along with higher costs due to social distancing and higher material prices due to supply chain issues, should also support prices.

Credit conditions for house purchases have tightened, but only moderately so, thanks to the substantial and timely response of the European Central Bank (ECB) and national central banks, and more broadly because of government support to the household sector. Conditions should gradually improve again in line with the economic recovery that we expect to start in the third quarter of this year. More generally, we expect monetary policy to remain extremely loose across Europe for several years, translating into ongoing low mortgage rates and underpinning the housing market during the recovery.

Finally, while many households are experiencing a dramatic fall in incomes, we expect the magnitude of lower household spending as a result of the enforced lockdown to outweigh the impact on their overall spending. Not only are people not dining out or going to concerts, they are also not buying new homes. As a result, households are currently accumulating large savings, which should help underpin the recovery of the economy and the housing market once virus-containment measures are lifted further and economies start gradually returning to a semblance of normality.

Risks to our forecast are considerable, with hardly any upsides in sight. We would likely revise our forecast down if it took longer than we currently assume for the virus to be controlled, for example if there were new waves of infections, or should job market measures be less effective in the medium term.

Table 2

S&P Global Ratings European Economic Forecasts (April 2020)
GDP Germany France Italy Spain Netherlands Belgium Eurozone U.K. Switzerland
2018 1.5 1.7 0.7 2.4 2.5 1.5 1.9 1.3 2.8
2019 0.6 1.3 0.2 2.0 1.7 1.4 1.2 1.4 0.9
2020 -6.0 -8.0 -9.9 -8.8 -6.7 -7.2 -7.3 -6.5 -6.5
2021 4.3 6.1 6.4 5.1 6.2 5.2 5.6 6.0 6.3
2022 3.3 4.5 3.2 4.3 4.0 4.1 3.7 3.2 4.0
2023 1.6 2.3 1.6 2.0 1.7 1.4 1.9 1.9 2.0
CPI inflation
2018 1.9 2.1 1.2 1.7 1.6 2.3 1.8 2.5 0.9
2019 1.4 1.3 0.6 0.8 2.7 1.2 1.2 1.8 0.4
2020 1.0 0.7 0.2 0.8 0.8 0.9 0.6 0.7 -0.3
2021 1.2 1.2 1.0 1.3 1.2 1.4 1.1 1.3 0.4
2022 1.3 1.5 1.1 1.3 1.3 1.5 1.4 2.2 0.5
2023 1.4 1.5 1.1 1.4 1.5 1.6 1.4 2.0 0.6
Unemployment rate
2018 3.4 9.1 10.6 15.3 3.8 6.0 8.2 4.1 4.7
2019 3.2 8.5 9.9 14.1 3.4 5.4 7.6 3.8 4.4
2020 3.6 9.5 11.1 16.4 3.8 6.0 8.6 6.1 5.3
2021 3.8 9.7 11.2 16.5 3.9 6.1 8.6 6.0 5.1
2022 3.6 9.1 10.6 16.1 3.7 5.8 8.1 4.4 4.7
2023 3.5 8.7 10.0 15.8 3.6 5.6 7.8 4.2 4.3
10-year government bond
2018 0.5 0.8 2.6 1.4 0.6 0.8 1.2 1.5 0.0
2019 -0.2 0.1 1.9 0.7 -0.1 0.2 0.4 0.9 -0.5
2020 -0.5 0.0 1.5 0.6 -0.2 0.0 0.2 0.5 -0.4
2021 -0.5 -0.1 1.4 0.4 -0.3 0.0 0.2 0.8 -0.5
2022 -0.3 0.1 1.7 0.5 -0.1 0.1 0.4 1.3 -0.4
2023 -0.2 0.3 1.9 0.7 0.1 0.4 0.6 1.7 -0.3

S&P Global Ratings acknowledges a high degree of uncertainty about the rate of spread and peak of the coronavirus outbreak. Some government authorities estimate the pandemic will peak about midyear, and we are using this assumption in assessing the economic and credit implications. We believe the measures adopted to contain COVID-19 have pushed the global economy into recession (see our macroeconomic and credit updates here: As the situation evolves, we will update our assumptions and estimates accordingly.

Related Research

  • Europe Braces For A Deeper Recession In 2020, April 20, 2020
  • Europe's Housing Market Inflation Is Losing Pace, March 2, 2020

This report does not constitute a rating action.

EMEA Chief Economist:Sylvain Broyer, Frankfurt (49) 69-33-999-156;
Senior Economist:Boris S Glass, London (44) 20-7176-8420;
Marion Amiot, London + 44 20 7176 0128;
Economist:Sarah Limbach, Paris + 33 14 420 6708;

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