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.
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.
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.
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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