Owner-occupied property: Demand increasing again on housing market

Just a brief shock: Rapid normalization expected for owner-occupied property market

After a brief paralysis, the owner-occupied property market is likely to see a rapid normalization. The bottom line is that residential property remains attractive thanks to very low interest rates and low levels of construction activity. However, property owners will need to wait a while for a lasting recovery. 

COVID-19 lockdown temporarily paralyzes residential property market

Having begun the new year on an extremely promising note, the Swiss residential property market temporarily went into a state of shock due to COVID-19 and the lockdown. Buyers of owner-occupied homes became increasingly unsettled due to a sharp rise in short-time working and unemployment, with consumer sentiment recently falling to an all-time low. The pandemic caused many people to defer the purchase of a home.  

Owner-occupied market hit by deteriorating consumer sentiment

Record-low consumer sentiment affecting owner-occupied market too 

Consumer sentiment, divergence from average 2000-2019

Source: State Secretariat for Economic Affairs
Last data point: 04/2020

Gradual trend reversal underway for owner-occupied homes market since easing of lockdown

Given that many real estate market indicators are only published quarterly, the repercussions of the COVID-19 pandemic are still almost impossible to gauge. Our analysis of the number of owner-occupied properties advertised on a weekly basis nevertheless shows a fall of 30% between the start of the lockdown and the end of April.

The market has slowly got back on its feet since the initial easing was announced in mid-April. Although the number of newly advertised single-family homes and owner-occupied apartments is rising again, the number of new advertisements remains well below its pre-crisis level. Wide regional disparities can also be seen: Compared with German-speaking Switzerland, the recovery is proceeding more slowly in French-speaking Switzerland and Ticino – the two regions hit hardest by the pandemic.

New advertisements for residential property rising again

After falling sharply, number of new listings for owner-occupied property rising again 

Advertised apartments on online platforms, per calendar week in 2020

Source: Meta-Sys AG, Credit Suisse
Last data point: May 17, 2020

Residential property less impacted than figures suggest

Overall, we think the owner-occupied market was less impacted than the low number of advertisements suggests. Fact is, the federal government's rapid response has prevented more extensive loss of salary in many instances. By the same token, the lockdown has served as a reminder of the importance of home ownership and rekindled demand. For many tenants, this is likely to reaffirm their objective of acquiring their own home. In addition, realtors, brokers, authorities, and banks have adapted to the new circumstances at record speed.  

The owner-occupied residential market will likely continue to be supported by the following factors:

Annual cost of home ownership remains very low

Average annual mortgage interest costs remain at a very low level – and are likely to fall even further this year. For existing homeowners, the average annual cost is just CHF 4,750. Even in the event of a loss of income, owners are therefore unlikely to experience payment difficulties.

The market also remains attractive to first-time buyers. When all costs are included, the average annual cost of owning your own home is in many locations lower than the cost of renting a comparable apartment. Demand is likely to remain focused on the low and mid-price segments. By contrast, we expect fairly low demand at the upper end of the market.

Financial cost of owner-occupied home is low

Financial cost of owner-occupied home at record low 

Mortgage interest cost per owner-occupied property in CHF; average mortgage interest rate as per September 30 of each year; 2020: forecast

Source: Credit Suisse, Swiss National Bank, Federal Housing Office
Last data point: 2019

Limited supply of owner-occupied property helping to stabilize situation

Along with low mortgage interest rates, the decreasing supply of new owner-occupied homes is another factor helping to support the market. Even before the outbreak of the COVID-19 crisis, experts from our team were forecasting that output of owner-occupied homes would fall by a further 7% this year. The decrease is likely to be even more significant in the short term in light of construction delays related to the pandemic. The supply of residential property is therefore likely to remain tight in the medium term.  

Rapid normalization likely for owner-occupied property market, but recovery will take time

Although the residential real estate market has already recovered from the worst of the COVID-19 shock, it will continue to be affected over the coming months. Assuming there is no second lockdown, we expect to see a further normalization.

A full return to pre-crisis demand levels is unlikely to occur before next year, however. The deep recession, painstaking task of reinvigorating the economy, and time required to restore confidence in the future will slow the recovery process.

Do you have questions about how the COVID-19 crisis is impacting the real estate market? 

Arrange a consultation  This link target opens in a new window
We would be happy to assist you. Simply give us a call at 0844 100 114.