Hometrack Cities Index April 2020

Spring is the busiest time of year for the housing market, so it comes as no surprise that there has been a surge in demand following it's reopening. The big question, of course, is whether it will be maintained.

Headlines

• The reopening of the market has led to a temporary surge of pent-up demand across English cities.
• The market outlook depends upon what proportion of the 373,000 stalled sales complete and how much the pick-up in demand translates into sales. 60% of movers say they are planning to continue.
• Continued Government support for the economy and availability of 90% LTV mortgages will shape the outlook for the market but we expect pricing to come under downward pressure in 2020H2.

The latest index results show annual price growth of +1.9%. This is a small reduction in the annual growth rate, from +2% in March. We expect this decline to become more marked in the months ahead as new pricing evidence emerges in the coming weeks. Price growth was flat over the month of April. At a city level, current growth rates are below the average for the last 5 years a gap we expect to widen in 2002H2.

​Pent-up demand returns as market reopens

The reopening of the English housing market on 13th May led to a surge of pent-up demand returning to the sales market. In the week after the market reopened, demand jumped by 88% and is currently 20% higher than at the start of March.

Click image for larger scale

​A short-term rebound in demand was to be expected, especially given how strongly the market started the year. While the scale of the recent increase in demand is high, it reflects the fact that the market has been closed for 50 days (15% of the year), at one of the busiest times for market activity.

​A one-off COVID boost to housing demand?

It is also important to acknowledge that millions of UK households have spent a considerable amount of time in their homes over the last 50 days. Many are likely to have re-evaluated what they want from their home and are looking for change. This could well explain the scale and speed of the demand returning to the market.
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However, it is hard to square the rebound in demand against projections for a sharp rise in unemployment and a major downturn in economic growth in the second half of 2020 and into 2021. We expect the economic impact of COVID to feed through into market sentiment in the near term. We expect the recent spike in demand to be relatively short lived with demand likely to moderate over the coming weeks.

​Levels of market activity more subdued

While demand for homes has grown, harder measures of market activity are increasing more slowly. New sales agreed, sold subject to contract, were running at 10% of normal levels over the lockdown and have now started to increase off a low base – up 12% in the week after the lockdown.
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We expect sales volumes to increase further but at a more moderate pace given the typical 2-month lag between new demand entering the market and sales being agreed. If available supply does not increase, then not all this demand will be satisfied.

​Market outlook for rest of 2020 depends on 2 factors

Looking ahead to the remainder of the year there are two distinct aspects to consider. First is how many of the 373,000 stalled sales make it to completion. Second is how new demand for housing holds up and how much of this translates into new sales. The pricing agreed on these new sales will give a clearer view on the outlook for house prices over the rest of the year.

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