As weeks settle into months under the coronavirus lockdown in the U.K., the latest analysis from Zoopla and Hometrack suggests that the pause button has been pushed on 373,000 property transactions, with the combined estimated value of this figure rounding out at approximately £82 billion.
There are fears and predictions that this halt could lead to a seismic fall in house prices over the coming months, but would it really be that severe? I think it is actually quite unlikely.
The Zoopla release shows that while demand for homes dropped 70% over March and bottomed out near the beginning of April, it has slowly been on the rise in the intervening weeks. What I am pleased to see is that although agents have reported reduced levels of new supply, the number of residential properties up for sales sits just 4% lower than March’s early reading, suggesting that most sellers aren’t packing in their plans but are holding firm for the market’s revival – confident that when the housing market reopens for business, hopefully within a very short span, house prices will remain at or near the level they were at before this crisis hit.
The Zoopla release in itself is a bit of an outlier in the indices market of recent weeks as many of the big names such as Nationwide, Halifax and Rightmove have chosen to either suspend or review their HPIs until the market starts up again. This is because, quite rationally, it’s very difficult to base a fair assessment of house prices with valuations effectively on hold and so many variables affecting our near-term economic future.
Now there are suggestions from some camps such as the Centre for Economics and Business Research (CEBR) that house prices in the U.K. could fall by as much as 13% by the end of 2020 due to a decline in transactions, high uncertainty and declining incomes. This comes off the back of their earlier analysis showing a 31% decline in U.K. economic activity under lockdown.
I won’t deny that the short and long-term economic impacts of the coronavirus and the lockdown are likely to be painful for quite some time, but there are indicators that the housing market will pick up faster than other sectors. Certainly, the Zoopla release talks to the resuming demand among consumers who are stuck at home waiting for the world to start spinning. This has also been supported in the very recent Property Sentiment Trackers of Yomdel – a provider of 24/7 live consumer chat tech for estate agencies. Their research indicates that business enquiries from buyers and sellers has seen a resurgence in recent weeks as pent-up demand search for an outlet.
The key questions on everyone’s mind seem to be ‘when will this lockdown be lifting’; ‘how damaging will it be to my finance, employment and/or business’; and ‘what will the shape of the recovery look like.’
You’ve probably heard much talk recently of ‘V’ or ‘U’ shaped recoveries. Eyes in Britain turn to those countries a few weeks ahead of us in the pandemic who are now looking to ease their lockdown restrictions as the spread of the COVID-19 slows locally. How quickly their economies pick up could be a key indicator or how ours responds domestically.
What is important to keep in mind is that whilst the pandemic has had extremely significant economic repercussions, the government has been fairly quick to act with unprecedented financial support to protect jobs and the economy. Unlike the deep and dark recessions of the past that were often driven by significant failure of financial structures over a period of several preceding years, this one is likely to be much more short-lived as there is effectively nothing broken in the market – especially if we can open up the economy soon and resume business.
Which is why I do not see house prices falling significantly in either the short or long term. Sellers only drop prices when they are forced to sell and with the financial stability in place most will hold out until they can present their ideal asking prices. And there’s going to be a lot of pent-up demand.
2020 was expected to be a boom year for this market, particularly given the uncertainty caused by Brexit and last year’s election when many buyers and sellers held off on their plans. What I’m optimistic about is that the pent-up ‘boom’ has not dissipated but is rather ‘on-hold’, much like many of us are in our homes.
That’s certainly the belief of the renowned behavioural economist Roger Martin-Fagg, whom in a recent economic forecast projected that there would be a seismic cash splurge in the fourth quarter of this year once we’re out of lockdown and consumers’ confidence to spend returns. He further went on to suggest that the prospect for 2021 is very favourable, so it is likely that the anticipated 2020 housing boom has merely been delayed rather than deflated.
Savills, in a recent research report, stated that they stand by their five-year forecast leading up to 2024, just with a revised distribution of growth year to year – albeit noting that this could change if circumstances shift.
It is nevertheless a positive indicator that the market and house prices will not collapse over the coming months, assuming we recover to a degree of normality fairly quickly. On that merit, most sellers will no doubt hold on their prices, confident that the market will be ready for them soon enough when the time comes.