External shocks hit sales more than prices initially
Fifty years of history shows that external shocks and global events tend to impact levels of housing market activity more than prices in the short term. The impact on agreed sales prices tends to be more closely linked to direct shocks to the UK economy. It is too early to tell the scale of the direct economic impact of COVID- 19, especially considering the unprecedented Government response to support the economy.
What is clear is that housing transactions will decline very rapidly over the second quarter of 2020 and, given the time lag from a property being first marketed to becoming a transacted sale sold this will further reduce housing sales into 2020 Q3.
Sales volumes to fall by 60% in Q2 and into Q3 2020
Our modelling points to completed housing transaction volumes in 2020 Q2 being 60% lower than the same period last year. We expect low transaction volumes to continue into the third quarter. Individual months over the spring may see newly agreed sales down by as much as 80% on last year.
Building a pipeline of new business will take time
The timing of any rebound in housing market activity depends upon when new restrictions are lifted and the extent to which households and businesses can start returning towards a normal way of life. In the worst affected parts of China, the lockdown has lasted up to 2 months with restrictions now being lifted. While demand in property may rebound quickly it will take several months for agents to build a pipeline of sales dependent on their ability to transition to virtual activity during the period of lockdown.
House prices unchanged in short term
We do not expect any sudden changes in house prices in the short term. A proportion of sales agreed over the last two months will continue to completion and the rate of city level house price growth is unlikely to change in the next one to two months.
Most of today’s sellers do not need to sell, and they can withdraw their homes off the market until the outlook becomes clearer. Double digit house price falls tend to occur in times of economic stress where there is a jump in the number of forced sellers – typically a result of rising unemployment, a lack of credit or higher borrowing costs.
Economic impact will dictate the house price impact
Government and lender action to supporting mortgage payments for homeowners and landlords will limit the number of forced seller numbers in the next quarter. This will support landlords where rental income falls should renters delay or defer payments.
Beyond the next few months, the outlook for prices is largely dependent on the outlook for unemployment. Low mortgage rates mean forbearance will remain the preferred choice and further Government support in these unique times cannot be ruled out. However, the greater the economic shock and rise in unemployment the greater the potential impact on house prices over the spring and into the summer months.