Figures released earlier this week by Reapit, a CRM software provider that processes in excess of … [+]
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According to the latest Nationwide House Price Index, U.K. house prices decreased 1.7% in May over the previous month, the largest monthly fall since February 2009 following the 2007-08 Financial Crisis. The news appears to have added fuel to the fire over concerns that house prices are about to experience a precipitous drop due to the Covid crisis forcing the entire market to a near standstill. Taking a deeper look at the data and trends tells a different story, however.
First and foremost, the same Nationwide data show that year-on-year house prices in the month increased 1.8% over the same period last year. Annual house price growth may have slowed from the 3.7% registered last month, but there is nevertheless overall growth to prices rather than decline. It’s also worth bearing in mind that figures may be slightly compromised as many property indices, including the government’s official release, were suspended during this period as it became increasingly more difficult to collect accurate house price data.
The good news is that property activity has quickly recovered since restrictions were lifted last month, and while it’s too early to paint an accurate picture of house price growth, the markers are a strong indicator that prices will remain relatively stable, and are in fact more likely to go up rather than down.
Figures released earlier this week by Reapit, a CRM software provider that processes in excess of 30% of all U.K. property transactions, indicates just how quickly sellers, buyers, and renters have returned to market to get on with their plans and their lives.
The data followed trends in the property market in the weeks prior to the lockdown through to the last week of May. What is clear is that whilst activity across almost all stages of the buying and selling process declined during the lockdown, within the two weeks that restrictions were lifted since May 13, activities skyrocketed. Data tracked from the week when the housing market opened again up until the end of last week (May 29) showed that properties registered for sale were up 52.59%, valuations rose 72%, and sales instructions followed suit with a 79.95% jump. Offers on properties for sale were up a staggering 180.74%. Just by looking at the size of increase we are seeing in the past few weeks; it could well signify the V-shaped recovery shape that everyone is hoping for.
Looking at the bigger picture, i.e. comparing data from the week commencing May 25 with data from the end of February, the signs of an upturn seem even more evident. The combined percentage for sales and lettings enquiries was 17.34% higher in the week commencing May 25 than it was in the last week of February, whilst combined sales and lettings viewings are now only 22.12% behind end-February figures.
Perhaps most importantly, the sales pipeline of properties already on the market dropped by only 6.6% since pre-Covid levels, illustrating the remarkable resilience of the property market over this period.
Now how this reflects upon house prices is important because such prices are normally determined on two key factors: economics and choice.
Unfortunately for the former there have been many who face more difficult financial circumstances because of the pandemic, perhaps due to a decline in income or loss of employment. These influences could push sellers to lower their desired asking price if they are desperate to make a sale. However, so far this number is in the minority, and it is only when a significant number of homeowners are forced to sell up due to dire financial circumstances that house prices more collectively engage in a fall. We are certainly not there yet and if the economy picks up quickly with most businesses reopening over the coming months then this scenario should be headed off. Particularly as the government’s financial support structures such the furlough and self-employment support schemes, Universal Credit facility and mortgage relief options offered by lenders should protect the majority from financial difficulty – I’m not arguing it’s perfect, but it’s key in understanding the stability of house prices.
For the latter, the overall reduction in transactions will mean both fewer properties on the market now, and more people looking in the months to come as pent-up demand is released and consumer confidence picks up. This will directly impact on supply and demand, which as we have already known since long before the pandemic, has been precipitating and stimulating both house price growth and a burgeoning housing affordability crisis, which I will be analysing in more detail next week. There may be some changes in terms of where people choose to live as the lockdown has reportedly pushed a shift in buyer and seller priorities, but this will likely only influence house prices on a localized level. Nationally, housing volume must increase for house prices to come down. However, house-building was still way below par in May, with yesterday’s Purchasing Mangers’ Index from IHS Markit and CIPS showing that residential construction activity over last month registered a figure of 31 on the Index – with any figure below 50 representing an overall decline in output. And judging from the cold, hard data, buyer demand is taking flight even if we are all stuck at home, so this supply dearth of homes is sure to push up prices for the hungry if construction is not ramped up.
Funnily enough, if you need any other argument that after a crisis comes growth, look no further than Nationwide’s own data from March 2009.
What happened in the month after house prices met their historic low?
They went up. Fancy that.