Recovering from the Covid-19 pandemic is paramount, but here at TwentyCi, our thoughts are already focused on assessing the impact of the pandemic. This will therefore be the first in a series of communications on counting the cost of Covid-19.
Costs can be measured in a myriad of different ways – we will not of course focus on the most important one, which is the human cost of life, choosing to leave other more knowledgeable commentators to focus on this aspect.
We will be focusing on the financial costs and we begin by looking at the costs to the property sector itself. Readers who are not in the property sector should however continue to read on because we recognise the fact that we have a “broad church” of clients and the need to be relevant to everyone.
They Think it’s All Over
If you have managed to venture out of your home in the past week, you may well be forgiven for thinking that life looks increasingly “normal”. Pubs and restaurants are now open, retail stores are open and there just seems to be a lot more people and traffic about.
In our view, this feature is also present in the property market as well right now and it started even earlier in England as the property market was re-opened up on the 13th May 2020. Take a look at the following graph which shows the volume of property coming onto the market for sale (New Instructions) as a 7-day moving average since early February…
The chart has three parts to it. Firstly, from the beginning of February to mid-March, there was normality, with New Instructions healthy ranging between 5k and 6k per day. I will refer to this time as Pre-Covid.
Covid-19 then gets a foothold in the UK, which results in Boris starting a period of lockdown on 23rd March. After this time, we see an immediate dip in the volume of New Instructions, followed by a “trough” for a few weeks, with things recovering very quickly from the re-opening of the market on the 13th May. I will refer to this time as Covid.
Finally, from about the 16th June, a “new normal” returns. Which to us looks exactly the same as the old “normal” and if anything, slightly higher in volume terms because of “pent up” demand. I will refer to this time as Post-Covid.
As I said, you could be forgiven for thinking that as far as property New Instructions go, the impact of Covid is no longer present and has not been for the last month.
The Cost of Covid-19 on New Instructions
However, putting our analysis hats on, it also means that as the chart shows pre and post Covid at very similar volumes. We could reasonably suggest that had Covid not have been present that the same numbers from pre and post Covid would have continued in the middle “Covid” period, making the trough disappear.
This enables us to count the cost of Covid-19 to New Instructions for the first time. In volume terms during this period, based on the pre-Covid and post-Covid time, we would have expected New Instructions to be about 837,000. With the impact of Covid in place, they were actually 552,000.
So, it is reasonable to state that the cost of Covid-19 on the volume of New Instructions was a loss of 285,000 New Instructions. For comparison terms (the rationale for which will become apparent later) this is a fall of 34% on what we might reasonably expect given a scenario involving no Covid-19.
To express this in monetary terms, we would have to assume that all agents sell 65% of what they list at commission fees of 1% on an average house price of £232,000, this would equate to a loss of around £430 million in Estate Agent Commissions alone.
However, please read on.
The Cost of Covid-19 on Sales Agreed
Let’s move onto assessing the costs of Covid-19 on the volume of Sales Agreed. Take a look at the following graph which shows the volumes as a 7-day moving average since early February…
I’m sure that we can probably all agree that it looks remarkably similar in size and shape to the new Instructions graph.
In volume terms during this period, based on the pre-Covid and post-Covid time, we would have expected Sales Agreed to be about 657,000. With the impact of Covid in place, they were actually 419,000.
So, it is reasonable to state that the cost of Covid-19 on the volume of Sales Agreed was a loss of 238,000. For comparison terms, this is a fall of 36% on what we might reasonably expect.
Again, to express this in monetary terms, we would have to assume that all agents complete 85% of their agreed sales, at commission fees of 1% on an average house price of £232,000, this would equate to a loss of around £470 million in Estate Agent Commissions alone. Arguably, this measure is more accurate, because Sales Agreed are closer than New Instructions to actual completed sales of property.
However, we also have Exchange triggers that are closer still to the actual completed sale, so again, please read on.
The Cost of Covid-19 on Exchanges
In the past we have spoken many times about the accuracy of TwentyCi’s exchange triggers under normal conditions. As a reminder, we have found that over 96% of our exchange triggers within England, Wales and Scotland receive Land Registry (or equivalent) transfer notifications. So, even though our exchanged triggers are derived, they clearly do provide an accurate method of looking at transaction volumes prior to when HM Land Registry numbers are released.
This is where the story starts to look a lot more positive. Look at the following graph which shows the volumes as a 7-day moving average since early February to the end of June…
As analysts, we have two alarm bells ringing in our head. By far the most important one is that this chart does not look the same as the New Instructions or Sales Agreed charts. It looks like a “V” shape as opposed to a “U” shape. This means that if we are looking at the cost of Covid-19 in Exchanged trigger terms the “trough” did not last anywhere near as long.
Consequently, the middle Covid-19 bit is a lot less impacted and a lot smaller than we have seen thus far. So, what does this actually mean?
Well, spelled out, it means that consumers did not list their houses for sale during lockdown. Further, it means that consumers did not agree new sales during lockdown. But it also means that consumers continued to progress the sales that they had already agreed in much greater numbers than one might have expected.
In fact, the numbers suggest that in volume terms during this period, based on the much larger pre-Covid and post-Covid time, we would have expected Exchanges to be about 365,000. With the impact of Covid in place, they were actually 306,000.
So, it is reasonable to state that the cost of Covid-19 on the volume of Exchanges was a loss of 59,000 transactions. For comparison terms, this is a fall of 16% on what we might reasonably expect and not the 34-36% previously experienced with New Instructions or Sales Agreed.
So, if we assume our Exchange data now remains as accurate as it has been in the past, then we are talking about a much smaller impact than we have first measured. We will not know this for sure until HMLR and HMRC release and adjust their data in a few months’ time.
To express this in monetary terms, we would have to assume that all agents sell 100% of properties that have exchanges triggers, with commission fees of 1% on an average house price of £232,000, this would equate to a loss of around £137 million in Estate Agent Commissions. And at this stage, without further data to qualify or the advantage of hindsight, this is what we are suggesting is the most likely outcome.
Like everyone, we are not sure that Covid-19 is all over yet, but if our analysis above materialises to be true, the impact of a loss of 59,000 sales seems like a relatively small price to pay, given the shocking health impacts of the pandemic in the UK.
We will of course keep an eye on developments in this space for you.