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SARS and Spanish Flu: What we can learn from pandemics of the past

If past history reflects the current global state, we are heading towards a period of sharp decline in economic activity, according to Svenja Gudell, the chief economist at Zillow.

Gudell looked at past global pandemics — the 2003 SARS outbreak, the 1918 Spanish Flu and even the early days of coronavirus’ spread in China — and found that typically economic activity drops sharply but snaps back quickly when the epidemic ends. During a standard recession, economic activity falls for 6-18 months and recovers at a slower rate, according to Gudell.

In terms of housing specifically, during the SARS outbreak, housing prices didn’t fall significantly, but transaction volume plummeted 33 to 72 percent, with homebuyers trying to avoid contact.

“By the time that SARS hit in February 2003, the Hong Kong real estate market had already experienced a downward trend in transactions and in a real residential price index,” Gudell wrote. “Between February and May 2003, transactions were 33 percent below their January 2003 value, before returning to normal by July.”

“We note that this fall is difficult to distinguish from the preexisting downward trend,” Gudell added. “Meanwhile, real property prices fell to 1.9 percent below trend in May and then recovered, although this fall is difficult to distinguish from other real estate price swings that are unconnected with SARS.”

According to early data, transactions have nearly ceased entirely in China, during the first period of COVID-19 in China. Prices have not fallen, so far, according to early data.

There were mixed signals on whether or not leading indicators said that a recession would occur this year, Gudell said, but last week we officially entered a bear market.

“It is difficult to precisely forecast the probability of an epidemic-related downturn and/or how such a downturn could provoke a standard recession because this depends on how COVID-19 progresses and how this progress interacts with preexisting recession risks and policy responses (ranging from doing nothing to shutting down entire cities for months at a time),” Gudell said.

Read the full study here.

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