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Some 373,000 property transactions, with a total value of £82bn, are on hold after the Government effectively suspended the housing market as part of its measures to control the coronavirus outbreak, according to the latest UK Cities House Price Index.
Annual house price growth is +1.8%. This low by recent standards but higher than a year ago +1.2% (Fig 1). The lockdown is yet to impact house prices – and the scale of any impact remains to be seen. The monthly growth rate for March, at 0.1%, is the lowest for a year, and a third the level of January and February.
New sales agreed are down 90% since early March and with the lockdown set to last until at least early May, pricing evidence will be limited over the next 2-3 months. Some new sales are being agreed based on viewings ahead of the lockdown but running at a tenth of the levels in early March. Activity will take time to recover as restrictions lift and market activity grows.
The browsing of property online and the demand for homes fell sharply over March with the greatest decline before the lockdown (Fig. 2).
The fall in demand and browsing bottomed out at the start of April and has started to increase slowly off a low base. Browsing levels have recovered to within 35% of the levels at the start of March while demand is still 60% lower.
We have tracked the weekly change in housing demand across UK cities since the week ending 8 March when the impact of COVID-19 started to bite.
Fig. 3 plots the decline in demand to the ‘low point’ after the lockdown (w/e 5 April) and data for the latest week (w/e 19 April). The chart shows the relative decline in demand across cities and those where there has been an improvement in demand over recent weeks.
Cities in northern England have recorded below average falls in demand over the recent downturn. In addition, they have recorded some of the stronger increases in demand over recent weeks, notably Manchester, Liverpool and Leeds. These are all cities where 2020 started strongly and housing affordability remains attractive.
These cities could see a faster bounce-back when restrictions lift although most cities have recorded an improvement in recent weeks. At the other end of the spectrum, higher value and high growth cities such as Cambridge, Edinburgh and Southampton have recorded no material change to underlying levels of demand over the last two weeks.
While demand may be increasing off of a low base, new sales agreed remain at very low levels. The temporary suspension of the sales market has put a significant volume of sales on hold.
We estimate there are c 373,000 sales held up in the pipeline worth a total of £82bn. This equates to nearly £1bn in sales commission for estate agents. Our data shows that the majority of these sales were agreed (subject to contract) between November 2019 and
February 2020. Many of these sales may come back later in the year, dependent on the wider economic landscape but at present they are on hold
Even if restrictions lift in early May, there will have been a 2-month suspension of market activity, which has affected the early stages of the sales process. It will take time for the delayed deal flow to resume and for a new pipeline of business to form.
While lenders are extending the timeline for mortgage offers to support the market, there may be limits on how much further they are prepared to extend offers without the need for a new valuation, which could result in future delays even once the market is up and running.
Our current estimate is that we will see a 50% drop in completed housing sales in 2020 compared to 2019. The historic low for housing sales in a single month was 42,000 in January 2008. We expect sales volumes to remain below this level until September 2020. This will result in transaction completed being 50% lower than last year. The positive news is that the total amount of housing for sale is just 4% lower than the start of March as vendors maintain listings so there is no mass withdrawal of homes for, so there is still plenty of choice for those looking.
Despite the decline in activity levels, demand has not dried up entirely. Increased interest in housing is not surprising as the start of the year saw pent-up demand released into the market. This is particularly true in London and south eastern England where affordability pressures, tax changes and Brexit concerns saw the market under-perform in the 4 years between 2016 and 2019.
These regions were set for a strong 2020. Regional cities, where employment levels have risen and affordability remains attractive, also started the year with momentum. Our December 2019 report highlighted the cities with the strongest fundamentals for 2020 and many cities at the top of that list are where we have seen demand rebound more than average over recent weeks.
There could well be some support for housing demand and moves off the back of the COVID-19 crisis. Many people will have spent a prolonged period in their homes over the last month and a half – with some looking at a more prolonged period in some instances.
Some people working from home may be considering doing this more often, so considering extra space or locating further afield. There will also be those simply looking to make their next move or seeing an opportunity to try and find a bargain.
While demand for housing has started to increase, there is a question mark over the speed and trajectory of a recovery towards normal levels in the months ahead. Recent survey data from IPSOS Mori shows the over-riding concern of consumers is the COVID-19 crisis. Economic concerns are a distant number two and fears over employment down in eighth, although rising.
Low mortgage rates and major Government support are a positive but demand for housing in the coming months may be more seriously challenged by a deteriorating economic outlook that directly impacts employment levels for homeowners.
We will have a clearer view on the price impact once restrictions start to lift and we get a flow of new sales agreed and pricing evidence. We will be able to track this and changes in the level of pricing for new and existing sales inventory to get an early view on the development of pricing.
We have no plans to make any changes to the index or reporting in the face of lower volumes of pricing evidence. Hometrack, who are market leaders in automated valuation models for UK housing, run the Zoopla house price index each month.
We have built the series to be as accurate as possible; in practice proving to be at least comparable in performance with other published indices. The Zoopla indices use more pricing data, from a wider spread of sources, than other major house price indices.
In addition, we also use a repeat sales-based approach which is less data hungry than hedonic price indices. The latest index is using data on agreed and completed sales plus independent property valuations over March.Fig. 3: Change in demand by city from w/c 2 March
House prices are set to hold firm for the remainder of the year - despite the onset of recession and rising unemployment
The property market is set to lose 124,000 sales in 2020, with a combined value of £27bn, as a result of the COVID-19 market suspension.
The surge in demand for property is expected to delay house price falls, pushing them towards the end of 2020, according to this month’s UK House Price Index by Zoopla - the UK’s leading property resource
Two weeks on from the Government reopening the property market and pent-up demand has exceeded levels recorded pre-lockdown at the start of March.