According to the Zoopla/Hometrack Index, property values in the UK's major cities do not appear to be suffering any ill effects from the pandemic, with 16 of the largest 20 recording gains of 2% or more over the last year
Housing market activity continues to run at its strongest level for over 5 years on most measures. The number of new sales agreed per agent in August is 76% above the 5 year average with a similar trend in demand while average sales periods decline.
This is not just pent up demand returning to the market. It also reflects the impact of a once in a lifetime reassessment of the nation’s housing needs in the wake of the 50+ day lockdown. Homeowners and renters are reconsidering their housing requirements, characterised by a search for more space and changing expectations for work and commuting patterns.
The strength of demand and sales is supporting the headline rate of UK house price inflation which slowed to +2.5% in July from +2.7% in June. The 3 month growth rate peaked at +1.1% in April on sales agreed before the lockdown and has now almost halved to +0.6%.
House prices to increase over 2020 despite recession
At a city level growth rates are holding steady with average prices rising at over 4% per annum in Nottingham and Manchester and 16 of the 20 cities recording growth of 2% or more. There is no sign of any immediate deterioration in price growth despite the onset of economic recession. Government support for the economy has been vital in supporting business and consumer confidence.
Looking back over the last 60 years there have been 5 recessions with nominal house price falls recorded over the last two (1990/91 and 2008/9). These more recent recessions were deeper and lasted longer than those before. Every recession has different underlying drivers and the current one is no different. The most important aspects for UK housing is the impact on household incomes, credit availability, mortgage rates and unemployment.
While the economy has contracted sharply and unemployment is rising, consumer spending has rebounded and purchasing manager indices are pointing to a wider rebound in the economy. This is positive but the unwinding of the furlough scheme and other Government support is the next challenge that will test the strength of economic recovery. In the short term we still believe that house prices will end the year 2% to 3% higher than at the start.
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