House prices after Coronavirus – Will they drop?
In this short article, we explore the potential scenarios of how house prices will be affected by Coronavirus and whether we should brace for a recession and drop in prices.
The past few years has undoubtedly created a lot of uncertainty in the property market. Now with the peak of the Coronavirus behind us, you may be wondering how house prices will fair.
Tracking back all the way to 2016 to when the first Brexit vote took place, investors, developers & landlords have all felt the turbulence in the market.
Let's explore what we could expect to happen with house prices.
- Pre advise
- Industry predictions
- Will coronavirus cause a recession?
- Will house prices fall after coronavirus?
- Should I wait to buy or sell?
- Advise for first time buyers
- Shifts in mentality?
- Popular properties during lockdown
If you’re considering buying or selling soon, we advise you to take your time in understanding the current market conditions and making your own, educated decision on how you may be affected by the virus.
We also advise you to take the large fear mongering news outlets headlines with a pinch of salt – websites dedicated to the property market provide a much better, educated and neutral view of the market, while the general media publish clickbait headlines with content that twists industry professionals words to get you hooked.
What is the industry saying?
So, the first logical way to approach this situation is to read the predictions of house prices after Coronavirus by industry professionals.
There are varying opinions on how house prices will be affected by the Covid lockdown, below, we’ve listed six views on how the situation could play out.
1. Royal Institution of Chartered Surveyors (RICS)
A recent RICS survey has found that 40% of respondents believe that UK house prices could fall by over 4% during 2020. 35% of respondents expect prices to fall no more than 4% during 2020.
Lloyds have published a number of models, with the best case scenario predicting a drop in prices of around 2.2% during the year, which will recover in 2021 and onwards. The worst case scenario published by Lloyds predicts that prices could drop by 10% by the end of the year.
3. Capital Economics
Capital Economics believe that there will be a decline in house prices averaging at around 5%. They also stated that it is unlikely there will be a property market crash, as sales should rebound later on in the year.
Savills predict that prices could fall anywhere between 5-10% on average by the end of 2020. Similar to Capital Economics, Savills believe that 2021 will bring improved growth, which will continue over the next 5 years and be lead by increases in the London property market.
5. Knight Frank
At the beginning of lockdown, Knight Frank estimated that house prices could fall by around 3%, however this was assuming that the Covid lockdown would end by May. Now that the staged ending of lockdown has been announced, which could last until July, Savills estimate a 7% drop in UK house prices due to Coronavirus.
The Nationwide index data shows a 3.7% y-o-y increase in UK house prices for the month of April – However, lockdown had not been long introduced, therefore this data may not be portraying the wider picture.
Points to note:
You should also remember that price predictions from 2019 for 2020 weren’t exactly great to begin with due to the turbulence caused by Brexit and ongoing trade deals.
With the start of 2020 bringing increased optimism and expected growth in the market, this has now dramatically changed due to the global situation. Once the lockdown is completely over, we should expect the market to get back to normal fairly promptly.
However, there is a way to go before full market recovery yet, which we’ll get to shortly.
Other sectors of the market
Due to the lockdown, the majority of the property market had come to a standstill. Although businesses can now run again, it will not be to full capacity, with a large proportion of the industry working remotely. So we could expect some improvement in the market for the short term.
Both buyers and sellers have also been backing out of deals due to the concerns of what could be ahead both financially and health-wise. This has greatly reduced new stock entering the market and also reduced transactions across the board, meaning less cashflow and less profit throughout the industry.
Portal traffic increases
It should be noted that the property portal Rightmove has reported a 20% increase in prospective home buyer searches since the beginning of lockdown while Savills have had a 17% increase in registrations – which would suggest that there is still a confidence and interest in the market from both buyers and sellers.
The increase in users from Rightmove could however be a false positive – With the majority of the population being in lockdown with more time on their hands; to kill time they may just be casually browsing the market.
Will coronavirus cause a recession?
Yes it is likely that we’ll experience a global recession, which is expected to begin toward the end of June and begin recovery throughout 2021.
The effects of unemployment and entire supply chains being on hold will definitely be felt throughout the global economy – it is highly likely that there will be a large reduction in non-essential spending, and travel.
Confidence should not be lost, banks are positioned and ready for a recession, unlike the 2008 recession. Therefore this should only be a short-lived downturn.
The figure above by the Bank of England illustrates the potential scenario of a sharp decline in GDP accompanied by a relatively fast recovery toward the end of the year and levelling off to normal throughout 2021.
A recession entirely due to Coronavirus?
There have been talks of a recession since late 2018, so in a way, the Covid situation only caused the recession to occur earlier than anticipated.
Coronavirus should not be thought of as the only cause of a global recession. From historical data, a recession (or price correction) is expected to occur every 10 years, therefore we were overdue anyway, whether or not there was a global pandemic.
The likely upcoming recession should also not be compared to the ’08 recession. In 2008, consumer trust in banks and between banks was completely lost, which is not the current case – this is why the potential recession is predicted by the BOE to be short lived.
As can be seen in the figure above, unemployment rates could be as high as 9%, but will recover rapidly throughout 2021.
At the very start of the outbreak, the predictions were shocking, however the outcome has not been as bad as first predicted.
Obviously, we can’t just ignore every prediction moving forward hoping that it is massively over-stated, however, recession-wise, as long as unemployment rates recover as quickly as the BOE predicts, we should not worry about the likely upcoming recession impacting life as bad as the 2008 recession.
Will house prices fall after the Coronavirus lockdown?
As we have mentioned in other UK house price related articles – no one can look into a glass ball and truly predict the outcome of any event on the market, however with large amounts of data, potential guesstimates can be made.
Due to the large decrease in property transactions, coupled with a decrease in activity across the industry, along with a potentially stagnant property market and global recession looming, it would be expected that UK house prices will fall due to coronavirus.
This point is solidified when you consider the BOE’s outlook along with all property professionals expecting prices to drop in 2020 and recovering in 2021 onwards.
Again, we come back to the property market fundamentals – these are the underlying factors which largely govern if house prices will go up or down.
Unlike 2008, where there was a complete banking disaster, which created a knock-on effect all the way down from developers to tenants, the current situation is positioned far better.
Looking back to how the property market faired due to the outcome of Brexit, it would seem that if the fundamentals are there, the property market remains stable and only experiences minor blips.
The fundamentals of the property market remain fairly strong and it for this reason that we should not experience a large property market crash.
Estate agents, Savills also have the same view:
"Add in to the mix the fact that we have low new-build rates coming through in 2020, low inventory and low interest rates, it becomes less likely we will see significant further falls from here." savills
Should I wait to buy or sell?
This can be an extremely difficult time for some – many buyers and sellers have been holding off to see the outcome of Brexit and are now faced with another time of uncertainty.
You should take into consideration the points above, that it is likely there will be a recession but it will likely be short with a relatively fast rebound – if you’re selling, the value of your property may drop by 5-10% in the short term, but increase as the economy gets back to normal in 2021 onwards.
Another point you should consider is the time taken to sell a house (LINK) – properties which have been on the market for a while seem less attractive to buyers, making it slightly harder to get a sale – consider holding off until early 2021 to sell your home, unless you are fine about lowering the price by ~10%.
If you’re looking to buy, the coming months may provide you a new opportunity to enter the market (or to build upon a portfolio) as prices could well likely dip, which will provide you an increased ROI. You should consider speaking with a mortgage provider to ensure you’ll be able to move quickly if any great deals do present themselves.
I’m a first time buyer – will I get a better deal if I wait to buy?
As a recession is on the cards for late June/early July, property prices may dip by 5-10%, meaning you will have a smaller deposit to pay – this is assuming mortgages rates remain the same, which, fingers crossed, they will – banks have not lost trust in each other, as was the case in ’08, when it become much more difficult to obtain a .high LTV mortgage
The relatively fast drop and recovery in prices means those of you who are house flippers could leverage the situation to increase profits – buy when (if) prices dip and sell in mid-late 2021 once prices have recovered.
There are also other less traditional routes, which could save you money, such as building or purchasing a container home.
A shift in mentality
The new ‘normal’ after the Coronavirus lockdown completely ends may be vastly different to the pre covid ‘normal’.
The pandemic may have opened many people’s eyes – not having to commute to work when it’s possible to work at home, having more time to relax and enjoy life at home and potentially increasing holidaying in-country due to reduced flights. Maybe these will be the new norms.
Those who have unfortunately been made redundant due to the pandemic will, potentially, in future be more wary about saving a larger percentage of income for hard times;
Over the past 2 decades, it has become the norm to spend the majority of each paycheque on “stuff”, a huge percentage on a mortgage, holidays and all the newest gadgets and tech.
With millions and millions filing for unemployment worldwide, realizing that their latest splurge of cash on the newest mobile or latest fashion items could have been utilized much more effectively, many may now shift their mindset.
If you are one of these people who spends the majority of each paycheque, you should check out the FIRE lifestyle – It enables you to live with less stress, more relaxation and is about building a safety net and sustainable nest egg. We’ll be covering this within the next few days, so stay tuned.
What were the popular properties during lockdown?
Data from numerous property portals has found that country houses have become more popular than big city locations.
It doesn’t take a genius to understand the reasoning behind this – in the countryside, you have far more space to roam freely outside, larger gardens and built up areas are nowhere near as crowded as the major UK cities.
Perhaps there could also be a demographic shift in the years to come, where social distancing from lockdown is a regular part of life. We may see a large increase in people moving to the country to escape the busy, crowded cities.
What do you believe the outcome of coronavirus on UK house prices will be? Let us know – share this page using the buttons below and tag us in your comment!
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