Early indicators suggest post-lockdown surge for sales market, but how long can it be sustained?
The second quarter of 2020 has seen more than its fair share of housing and economic news. The housing market reopened on 13th May (in England, later in the devolved nations). This was a seven-week closure, shorter than many in the industry expected and when compared to the lockdowns endured by most other sectors. The market was given a further boost by a significant stamp duty cut on 8th July (temporary – until 31st March 2021), changing the starting point for the tax to £500,000.
With the official ONS house price indices still suspended (and having a significant lag anyway), other indicators have been useful for measuring the impact of lockdown and looking at activity through the quarter, but the full picture could take many months to become clear.
In May and June, Nationwide reported significant month-on-month falls in UK house prices: 1.7% then another 1.4%. The building society increased their deposit requirements for new lending from 5% to 15% in June but, following the announcement of a Stamp Duty holiday in July, partially reversed this to 10% (under certain conditions). Many other mortgage lenders made similar changes with the outlook for prices so volatile. Mortgage approvals continued to fall, with month-on-month figures of -72% and -42% for April and May respectively.
The RICS Housing Market Survey has been very volatile over the past few months, reflecting the changing economic conditions and various policy responses. ‘Sales expectations’ bounced back from its record low in March to reach +16 in June, and ‘Agreed sales’ reached +43, its highest level since 2013.
The sentiment measured by the RICS survey is often a good predictor of short-term trends. Figure 2 shows the survey data plotted against two measures of actual transaction levels. The ‘Agreed Sales’ measure, lagged by nine months, appears to approximate the actual sales data quite accurately, although it underestimated the size of the previous downturn. Projecting the latest figures forward suggests that the forecasts of substantial transaction falls made during lockdown may have been overdone if the improved sentiment translates into actual activity.
Other sources also report a rapid recovery in interest in home buying. Zoopla’s May index reported buyer demand was up 46% since March (compared to -70% in April) and agreed sales up 4%. Rightmove’s June report noted demand was around 60% higher than the same week the year before, and that agreed sales were only 3% down on a year earlier after bottoming out at 94% down – the report described a “flood of pent-up demand” being released.
The big question is how long this recovery in activity can be sustained. The housing market appears to have carried on where it left off and built on the strong start to the year pre-lockdown, but the economic impact of Coronavirus looks like it will be severe and long-lasting.
The evidence on values is also a mixed bag. We saw above that the latest monthly Nationwide figures (based on their own mortgages) were very negative, leading to an annual fall for the first time since 2012. But Zoopla and Rightmove reported annual growth rates that were higher than the start of the year.
Figure 3 shows the RICS net balance of opinion for price expectations compared to two measures of house prices. The RICS sentiment data has previously been a good leading indicator of actual price changes. The recent data is very volatile but the latest results suggest low single-digit falls could be expected by the end of the year.