While housing market activity increase sees prices recovery, fears persist for long-term impact of the pandemic

While housing market activity increase sees prices recovery, fears persist for long-term impact of the pandemic

House prices rose by1.7% month-on-month in July according to the latest figures from the Nationwide Building Society.

“The bounce back in prices reflects the unexpectedly rapid recovery in housing market activity since the easing of lockdown restrictions," said Nationwide's Chief Economist, Robert Gardner, 
“The rebound in activity reflects a number of factors. Pent-up demand is coming through, where decisions taken to move before lockdown are progressing. Behavioural shifts may be boosting activity, as people reassess their housing needs and preferences as a result of life in lockdown. Our own research, conducted in May (link), indicated that around 15% of people surveyed were considering moving as a result of life in lockdown. Moreover, social distancing does not appear to be having as much of a chilling effect as we might have feared, at least at this stage.
“However, there is a risk this proves to be something of a false dawn. Most forecasters expect labour market conditions to weaken significantly in the quarters ahead as a result of the after-effects of the pandemic and as government support schemes wind down. If this comes to pass, it would likely dampen housing activity once again in the quarters ahead," he added.

The fears concerning the possible longer-term impact of Covid-19 were echoed by property agent Strutt & Parker which reported a significant drop in transactions during Q2 due to the pandemic and the fact that the market shutdown between March to June, traditionally the busiest three to four months of the year.

Withith this in mind, Strutt & Parker, alongside its economic forecasters Volterra, is estimating house-price falls of between 1% and 7% in the year to Q4 2020 for the UK, with potentially larger short-term impacts.

Vanessa Hale, Director in Research at Strutt & Parker: “Whilst the property market has reopened there is still some considerable market uncertainty given the wider economic outlook. We estimate that at least half of prospective buyers and sellers in prime markets are discretionary, meaning they don't have to move and can afford to wait and see what happens to the market next year. This 'wait and see' approach has been further strengthened by the government intervention schemes such as mortgage holidays and furlough, which have made it financially viable for people to sit on their hands. Overall, half of Q2 transactions were lost across the UK. If this is also the case in Q3 and Q4, this would equate to a worst-case drop in sales volumes by 40-50% over the course of 2020.”

The firm also reported that in the prime central London market, total transaction levels remain at a historically low level with sales in the last quarter falling by -56% compared to Q2 2019 and by -54% compared to the previous quarter. Strutt *& Parker suggests that the six-month holiday on Stamp Duty Land Tax will likely have a positive impact on transactions throughout the country, but to a lesser extent in prime central London where it is estimating a best case of 0% growth n 2020 and a worst-case outcome of 5% falls. However, the short-term impact in this part of the market could be much gloomier with drops, year-on-year, of up to 10%; although Strutt & Parker says that these price falls are likely to only be felt in very low trade environments, specific submarkets, or with properties that have no other option but to transact at the current time.

Louis Harding, Head of London Agency at Strutt & Parker, comments: “It remains to be seen how much a change in working patterns will impact the periphery of PCL over the next year or two; we may see a rise in lifestyle changes with more people leaving London for the countryside and opting to work remotely or only commute into the city once or twice a week.”