The property market got off to it’s strongest start for four years at the start of 2020. But the coronavirus impact on the housing market slammed the breaks on growth.
This month average house prices experienced the biggest monthly drop since February 2009. The latest Nationwide house price index revealed that in the last month UK house prices fell by 1.7 per cent.
‘Housing market activity has slowed sharply as a result of the measures implemented to control the spread of the virus,’ explains Robert Gardner, Nationwide’s chief economist. ‘Data from HMRC showed that residential property transactions were down 53 per cent in April compared with the same month in 2019.’
While recent statistics from websites such as Rightmove, which recorded it’s busiest day last week, show pent up demand for housing starting to be released. The sharp contraction of the UK economy could still set the stage for a further decline in house prices.
‘The medium-term outlook for the housing market remains highly uncertain, where much will depend on the performance of the wider economy,’ says Robert Gardner. ‘The 5.9 per cent decline in UK economic activity recorded in March was only a little less than the decline recorded over the entire financial crisis.’
However, Nationwide’s chief economist is still optimistic that the raft of polices introduced to protect businesses, jobs and support peoples’ income, should help limit long-term damage to the economy and ‘set the stage for a rebound once the shock passes.’
‘These same measures should also help ensure the impact on the housing market will ultimately be less than would normally be associated with an economic shock of this magnitude,’ explains Robert Gardner.
Estate agents are still optimist that we should se a bounce back in house prices fairly soon. However, buyer priorities have changed, things such as outdoor space are not top of most people wishlist. Property buyer’s Good Move, warn that this could mean that the prices of flats or small homes could be among the last to recover.
‘The bounce back in the housing market is reliant on how the wider economy performs,’ comments Ross Counsell, the director of Good Move. ‘However, the bigger challenge is how consumer behaviour has changed and how sellers need to adapt to continue to sell their properties.
‘For example, they will begin to adjust their expectations on the price they will achieve and may be more inclined to accept a lower offer. Buyers are now putting more importance on aspects such as outdoor space which will mean a divide in how properties sell.
‘We expect to see house prices bounce back fairly soon, but flats and other similar dwellings may take a much longer time to recover.’
Coronavirus impact on the housing market? Here’s what the experts are saying…
The Centre for Economics and Business Research think tank has predicted that house prices will fall by 13 per cent by the end of the year due to the pandemic. It has revealed that the effect will vary across the country depending on how badly a region’s workforce was hit. The think tank predicts that house prices in Yorkshire and the Humber and Northern Ireland will fall hardest. In these regions the main industries of manufacturing, construction, retail and hospitality have been hit the hardest.
‘Although the government have offered up a vast package of support, this lack of demand will mean some businesses cease to operate,’ explains the CEBR. ‘This lack of demand will mean some businesses cease to operate, many workers will lose their jobs and a lot more will face a cut in incomes.’
‘Housing is the single biggest expenditure item for most households, which means that the shortfall in incomes has a tremendous potential to disrupt the UK’s housing markets,’ the CEBR adds.
Halifax, in it’s February House Price Index, reported an annual increase in house prices of 2.8 per cent in 2020. However, predicted that coronavirus could pose a potential road bump.
Unfortunately, it’s March House Price Index confirmed that the impact of coronavirus was already being felt. Houseprices, were still found to be 3 per cent higher than this time last year. However, average house prices showed no growth from February.
‘The UK housing market began March with similar trends to previous months, as key market indicators showed a sustained level of buyer and seller activity,’ explained Russell Galley, Managing Director at Halifax. ‘Overall average house prices in the month were little changed from February’s record high, while annual growth nudged up to 3%.’
‘These factors all underlined a positive trajectory and increased momentum in the early part of the year, with confidence rising as political and economic uncertainty eased. However, it’s clear we ended the month in very different territory as a result of the country’s response to the coronavirus pandemic,’ he adds.
‘It’s still too early to properly assess what potential long-term impacts the current lockdown might have on the UK housing market,’ he explains. ‘While there is very significant uncertainty at the moment, much will depend on the length of time it takes for restrictions to be lifted, the pressure that has been exerted on the economy in the meantime and the effect this has on consumer sentiment.’
‘We continue to have confidence in the fundamental strength of the housing market and remain ready and willing to lend on new mortgages, as well as product transfers and further advances, wherever and whenever there is demand,’ Russell Galley adds.
Founder and CEO of GetAgent.co.uk Colby Short doesn’t think it will be long before we start to see an impact on price growth.
‘We do know that listings coming onto the market have all but ground to a halt and this will have an impact on price as the number of sales reduces,’ says Colby Short. ‘The silver lining for the time being, at least is that this remains a Government induced market freeze and not a financial one, which should see a swift return to health once the dust settles.’
‘Of course, any financial impact may take some time to materialise on all sides and should sellers flood the market with stock they can no longer afford, prices will take far longer to recover than they would have otherwise.’
Marc von Grundherr, director of lettings and estate agent Benham and Reeves, agrees with this silver lining. However, is concerned that estate agents might struggle to keep up with buyer demand once lockdown is lifted.
‘We’ve seen the level of stock entering the market drop off a cliff in many areas so to speak, and we wait with bated breath to see what impact the pandemic will have on cold hard sales,’ explains Marc. ‘Unfortunately, due to the delayed nature of the reporting of completed property transactions, it shall be another month as least before we start to see any official signs of a market decline; although the latest index does suggest a slight impact already starting to show on a month to month basis.’
‘Demand is strong and while buyers have their hands tied at the moment, we will see an immediate uplift in activity once the lockdown is lifted,’ he adds. ‘When this does happen, we must ensure that the nation’s army of estate agents are fit for purpose to accommodate this and that there is no bottleneck of transactions due to a lack of working professionals.’
Zoopla saw a 88 per cent spike in buyer demand as soon as the housing market was reopened in May. While this was a full 20 per cent higher than demand at the beginning of March. However, the property website warns that this is temporary and we can expect to see demand level off over the next few weeks.
Hard evidence of the market moving forward is still subdued. New sales have only increased by 12 per cent since the market reopened, rising from sales running at a tenth of the levels recorded at the beginning of March. To put this into context, the volume of sales are similar to what you would see in late December.
Zoopla predicts that cities in northern England could see the fastest bounce back. The latest data has seen demand for properties on the south coast and in Northern England rebound the fastest. Both Portsmoth and Southhampton are see interest boom by 40 per cent more than in February. While in Newcastle demand has increased by about 35 per cent since February.
‘The scale of the rebound in demand for housing is welcome news for estate agents and developers, but it is also surprising given projections for a sharp rise in unemployment and major decline in economic growth,’ explains Richard Donnell, director of research and insight at Zoopla.
‘Covid crisis and 50 day lockdown have created an unexpected one-off boost to housing demand. Millions of UK households have spent a considerable amount of time in their homes over the lockdown period and missed out on hours of commuting.
‘Many households are likely to have re-evaluated what they want from their home. This could well explain the scale of the demand returning to the market. We need to see more supply come to the market to satisfy this demand.’
‘The economic impacts of COVID will grow in the coming months and uncertainty is building. The majority of would-be movers plan to continue their search, encouraged by low mortgage rates and continued Government support for the economy.
‘However, we expect the latest rebound in demand to moderate in the coming weeks as buyers and sellers start to exert greater caution. Further support from the Government can’t be discounted and would help limit the scale of the downside risks.’
All we can do is stay inside and make sure we are following Government advice to help us return to normal life as soon as possible.