UK residential sales review Q3 2020

At a national level the housing market had a very strong summer, defying the economic weakness caused by the COVID-19 lockdown and continuing restrictions. The third quarter of 2020 saw recovering activity levels and price increases, according to the main indicators.

The clearest sign of the lockdown being lifted was the 330% monthly increase in UK mortgage approvals in June. Growth continued in July and August – the 85,000 approvals in the latter being the highest level in a single month since 2007.

Figure 1 shows the monthly number of approvals (rather than the usual % change) alongside Nationwide’s monthly measure of house price growth. On their index, the falls in values reported in May and June have been more than cancelled out by rises in all three months this quarter. The 2.0% monthly rise in August was the highest since 2004.

The official ONS house price indices restarted (with an even longer lag than usual) after a pause due to lockdown and have shown similar mixed results. The UK index reported strong value growth from April to July after falls earlier in the year but it should be noted that, being based on completed sales, even the latest data may reflect sales agreed before or during lockdown.

The RICS Housing Market Survey has also been very volatile over the past few months, with surveyor responses reflecting rapidly changing market sentiment along with the economic and health news.

Figure 2 shows two survey metrics plotted against two measures of actual transaction levels. The ‘Sales Expectations’ measure, which looks forward three months, stayed in positive territory at +17 in September (+16 in June). The backward looking ‘Agreed Sales’ measure was stronger, reaching +55. These results have previously been a good predictor of short-term trends in activity when ‘lagged’ by nine months, suggesting sentiment takes a relatively long time to feed through into actual activity. Under lockdown the impact was more instant, with a steep drop in activity followed by a rapid recovery, so the future trend is unclear at the moment.

Transaction levels for the year so far (Jan to Sep) are around 21% below where they were last year, according to the HMRC data on completed purchases, but some catch up is likely over the rest of the year if other indicators of activity translate into actual sales.

Rightmove’s October index reported a series of metrics reaching record levels in September: lowest ever time to sell at 50 days; more sales properties marked as “sold” than “available” for the first time ever; and highest ever number of agreed sales in a single month. In September Zoopla reported that year-to-date sales agreed were 3% higher than the equivalent period in 2019, with their demand metric 39% higher.

Turning to house prices, all the evidence suggests that average values at national level will end the year higher than they started. While this might have seemed a safe bet in January, most market commentators expected the pandemic and ensuing recession to cause price falls in the short term. The combination of changing post-lockdown needs and a stamp duty holiday will have played some part in pushing prices to record levels on many indices.

The Nationwide index reported annual house price growth of 5.0% in September, the highest level for four years. This resulted in their average price metric hitting its highest ever (nominal) level of over £226,000. Although the official ONS has restarted, it continues to lag the other indicators so is not yet showing such high levels of growth, reaching +2.5% annual in August.

Figure 3 shows the RICS net balance of opinion data on values, compared to two measures of house prices. The RICS data reflects very volatile sentiment amongst their surveyor responses, with ‘Achieved Prices’ rising to +61 in September (vs. -11 in June) and ‘Price Expectations’ reaching +23 (also from -11 in June). Projecting forward, this suggests small price rises over the next few months at national level.

Rightmove’s asking price index also reported strong gains over the summer, +5.5% annual growth in September and an expectation of 7% by the end of the year. Zoopla were not quite as bullish, reporting annual growth of 2.6% in their August index report.

What happens next?

For Q4 the data is likely to show continuing strong performance, as the agreed sales from Q2 and 3 move to completion. Looking ahead to early next year the economic situation suggests demand may weaken. However, the end of the stamp duty holiday (plus the scaling back of Help to Buy and introduction of a further tax on overseas buyers) could bring forward activity from later in the year, making it difficult to see the true picture. The market could look very weak from April on, but the uncertainty around the economy and public health make it tricky to predict anything beyond that.