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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
UK house price growth is 2.4% on the year, up from 1.4% at the start of 2020 as the post-election rebound in market activity pushed house price inflation higher.
The rate of growth in the 20-city index has moderated from 2.4% in April to 2.1% in May. House price growth over the last 12 months has been strongest in Nottingham (4.3%), followed by Manchester (3.9%). Prices are falling in Oxford (-0.6%) and Aberdeen (-2%).
The 3 month growth rate for the 20 city index and selected cities is shown in Figure 1 - it shows the upward momentum in price inflation after December 2019 and the slowdown in the 3 months to May, largely a result of lower volumes of pricing evidence.
Zoopla’s house price indices are collated using over 100,000 data points including sales, mortgage valuations and listings data making it one of the most robust indices in the market.
The bulk of new pricing evidence continues to come from sales agreed before the lockdown.
Data on pricing for new sales agreed in the last 4 weeks is starting to feed through and points to a resumption in the upward pressure in house prices seen at the start of the year.
We expect the headline rate of house price growth to remain in the 2-3% range over the next quarter. We do not see any downward pressure on prices materialising until much later in 2020.
One indicator is the average asking price for homes marked as sold on Zoopla in the first 2 weeks of June which are 7% higher than a year ago (on a non=mix-adjusted basis) - see Figure 2.
This is a return to levels seen over the first quarter of 2020. We are not saying the growth rate in our UK house price growth is going to rise over 5% in the near term, but the general direction of the two series track each other over time supporting our view that house price growth will hold up in the near term.
New sales agreed lag increased demand which was rising over the lockdown and spiked higher as the English market reopened.
Rising demand also leads new supply as households searching for homes will then list their homes for sale - Figure 3.
Sales agreed have now rebounded to pre COVID levels as have the number of new homes being listed for sale. Demand for housing remains 46% above the levels of early March but it has started to weaken over the last 2 weeks - falling 8% since the 11 June.
This is not surprising given the strength of the boost in demand. While the Welsh and Northern Ireland markets have just reopened, demand has already rebounded close to English levels in anticipation of the market opening.
The market in Scotland reopens later in June but demand is already back in line with early March. Levels of agreed sales remain suppressed in these countries and their cities (Fig 4), although we expect them to rebound, mirroring England.
New sales agreed, compared to February this year, have recovered strongly in English cities - Figure 4. The rebound in sales has been led by cities in northern England - Leeds, Sheffield and Manchester.
In English cities where the recovery in sales has been weaker, including Bristol, Newcastle and Cambridge, this may not be solely due to demand-side factors, but the available supply of homes for sale.
Figure 5 shows the level of available supply in these cities is significantly lower than it was a year ago. In fact the average number of homes for sale across the 20 key cities is down 15% year on year.
While the flow of new supply has returned to pre COVID levels, overall stock levels per agent are lower because of no new supply coming to the market over the lockdown period.
Constrained supply is another reason why we believe house prices will rise in the short-term but it will be a concern for agents looking to rebuild sales pipelines. The message for would-be sellers is do not delay and list now while market conditions are stronger.
H2 While the near-term outlook is positive, we expect housing demand to weaken over the course of the summer as the economic impact of COVID starts to materialise, with widespread projections for increased levels of unemployment.
Weaker demand will be compounded by lower availability of higher loan to value (LTV) mortgages (90% and above) which will impact first-time buyers.
In 2019, a fifth of all homebuyers purchased a home with a deposit of 10% or less, so a decrease in the availability of 90%+ LTV mortgages means this cohort of would-be buyers may not be able to enter the market, effectively reducing demand.
Government and central bank support will continue to play an important role in how the economy fares with a knock-on impact for the strength of consumer sentiment. Retail sales, for example, rebounded more than many expected.
While almost a fifth of mortgage holders have taken payment holidays, borrowers are able to take these up until the end of October 2020 meaning support extending for the rest of the mortgaged sector up until April 2021.
Further support and innovation to support the economy and the housing market cannot be ruled out in these unprecedented times which will limit the downside, albeit but not completely.
First-time buyers are emerging back into the market after recording a fall in share of sales from their 2018 high, in the wake of 2020’s pandemic-led credit squeeze. As lenders withdrew 90%+ loan-to-value mortgages attempting to de-risk at the onset of the recession, many first-time buyers were forced to put their plans to buy on hold.
The third national lockdown has created a perfect storm for the property market, with a slowdown in the flow of new supply for sale as demand rebounds.
Housing market activity has come full circle in 2020 and will end on a high, despite the two month+ UK market closure borne of the pandemic.
The first quarter of 2021 is set to record a property uplift, with 100,000 additional sales expected to complete before the end of March. As buyers rush to beat the stamp duty deadline, the increased transaction pipeline from the final months of 2020 will spill over into the new year.