DBRS Morningstar: Italy's Housing Market a Challenge After COVID-19

DBRS Morningstar released a commentary on the developments in the Italian housing market.

Italy's housing market situation, despite showing some evidence of recovery before the Coronavirus (COVID-19) outbreak, was still fragile and in Q1 2020, the impact of the physical distancing measures caused a significant reduction in transactions, a fall of 14.4% year-on-year.

The deterioration in Italy's economic environment, including a likely large increase in the unemployment rate, could have additional adverse effects on the housing market. In DBRS Morningstar's view, property market fundamentals will weaken and financial institutions could be more selective in approving mortgages in these uncertain times. The annual flow of home sales are expected to contract in 2020 and also in 2021. Nevertheless, a large share of mortgages are concentrated among higher-income households, and this may mitigate against the risk of arrears and rising non-performing loans.

A higher number of unemployed people and a drop in disposable income will likely put negative pressure on house demand and affordability, even though interest rates are expected to remain low. A rapid and solid economic recovery is paramount in order to avoid long-lasting adverse implications for the property market

“Past evidence has demonstrated a high degree of stickiness in house price, as home sellers tend to be highly loss averse and wait before deciding to sell at a lower price. During downturns, time to sell houses could rise substantially with transactions likely to fall. Property prices instead are expected to decline more gradually and slowly. This could preserve asset valuation, but slow the pace of the adjustment eventually required”, said Carlo Capuano Vice President at DBRS Morningstar.

Notes:

The commentary titled :”Italy's Housing Market a Challenge After COVID-19” is available at www.dbrsmorningstar.com.

For more information on the impact from coronavirus visit www.dbrsmorningstar.com or contact us at [email protected].

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