UK HOUSE PRICE GROWTH TO HOLD AT +2% FOR NEXT THREE MONTHS, AS HOUSING DEMAND* DELAYS PRICE FALLS TO END OF 2020
24th June 2020
Six weeks on from the English market reopening and sales agreed are 4% higher than pre-COVID levels - despite prolonged market closures in Scotland, Wales and N. Ireland
Rebound in activity expected to subside in coming weeks as demand fell back 11% off a high base in last two weeks, but reopening of Welsh and Scottish markets will support near term demand
Elevated levels of demand and less available supply of homes for sale, which are 15% lower than a year ago, is creating an upward pressure on house prices - for example, the asking price of homes sold in June are up 7%** YoY
Demand for homes expected to weaken further over summer and into autumn, compounded by a reduction in higher LTV mortgages and the impact of COVID-19 on employment levels
Zoopla House Price Index finds greatest YoY house price increases were recorded in Nottingham (+4.3%), followed by Manchester (+3.9%); while prices are falling modestly in Oxford (-0.6%) and Aberdeen (-2%)
Overall, UK house price growth to remain in the +2% to +3% range over the next quarter, with downward pressure on prices materialising later in 2020
Zoopla’s latest UK house price index shows annual inflation of +2.4%, up from +1.6% at start of 2020; growth at cities level slows to +2.1% over last month as lack of pricing evidence impacts growth rate
24th June 2020, London: The surge in demand for property is expected to delay house price falls, pushing them towards the end of 2020, according to this month’s UK House Price Index by Zoopla*** - the UK’s leading property resource.
Price momentum from early 2020 continues as lockdown restrictions ease
The bulk of new pricing evidence continues to come from sales agreed before the lockdown. Data on pricing for new sales agreed in the last four weeks is starting to feed through and points to a resumption in the upward pressure on house prices seen at the start of the year.
As an example, average asking prices for properties marked as sold on Zoopla, which were rising at 7% in the first three months of the year, have returned to registering a similar growth rate over the first two weeks of June.
Near-term outlook for house prices
Most of these new sales agreed are likely to complete between August and October 2020, which we expect will show sustained UK house price growth of between +2% to +3% over the next quarter, once they feed into our index.
While some have forecast annual house price falls over calendar year 2020, we expect any price falls in our house price indices only to crystallise in the final months of the year.
Economic impacts of COVID-19 to hit home in H2 2020
After an initial rebound, we expect demand to weaken over the summer months as the economic impact of COVID starts to materialise, with figures reported last week by the ONS indicating an acceleration in unemployment. Caution amongst lenders and more limited availability of 90% loan to value (LTV) mortgages will reduce demand, particularly amongst first-time buyers who - over recent years - have been the engine of the housing market.
In 2019, a fifth of all homebuyers purchased a home with a deposit of 10% or less, so a decrease in the availability of 90%+ LTV mortgages could preclude this cohort of would-be buyers from entering the market, effectively reducing demand.
Government and central bank support will continue to play an important role in how the economy fares with a knock-on impact for the strength of consumer sentiment. Retail sales, for example, rebounded more than many expected in May.
While almost a fifth of mortgage holders have taken payment holidays, borrowers are able to take these up until the end of October 2020, meaning support is extended for the rest of the mortgaged sector up until April 2021.
Further support and innovation to support the economy and the housing market cannot be ruled out in these unprecedented times, which will limit the downside, albeit not completely.
Strongest sales rebound in northern cities
New sales agreed, subject to contract, have grown the most in England where the market is open for business. The rebound in sales has been strongest in northern England, led by Leeds, Sheffield and Manchester where sales are up to 20% higher than in February 2020.
In cities where sales are not keeping pace with pre-COVID levels, including Glasgow, Newcastle and Cambridge, this is down to a lower supply of homes for sale.
Level of homes for sale (inventory) in these cities is significantly lower than last year. While the new flow of homes for sale is back to pre-COVID levels, the number of homes for sale per estate agency branch is 15% lower than a year ago. This is a result of the market closure at what is a busy time of year. Stock levels in Cambridge, for example, are up to 40% lower year-on-year.
The lack of supply supports our view of house price growth holding steady in the short term.
House price growth
UK house price growth is up 2.4% on the year, and has increased from 1.6% at the start of 2020. The 20 city index registered slower growth over May, slowing to +2.1% from 2.4% in April as less pricing evidence dragged the growth rate lower.
The city with the highest rate of house price growth over the past 12 months is Nottingham (4.3%), followed by Manchester (3.9%). Meanwhile, Oxford (-0.6%) and Aberdeen (-2%) have recorded modest price falls.
Activity levels are expected to rebound in Scotland, Wales and Northern Ireland as these markets reopen and pent up demand is released. These countries account for less than a fifth of UK housing sales but more activity will support headline measures of demand and market activity in the immediate term.
The Welsh market opened on Monday but demand for homes has been building since the English market reopened, gaining momentum over the last two weeks. Demand for housing in Wales has now rebounded close to what has been recorded in England. Sales agreed, however, remain 65% lower than pre-COVID levels in Wales as the physical viewing of property has not been permitted. We expect sales volumes to increase over the rest of June and into July, mirroring the rebound in England.
Scotland’s market, which reopens later in June, has seen a similar trend with demand recently returning to pre-COVID levels, but with sales volumes lagging well behind.
Commenting on the findings of the latest UK House Price Index, Richard Donnell, Director of Research & Insight, said: “The rebound in housing market activity has taken many in the industry by surprise. It is welcome news given the projections for falling economic growth and rising unemployment. Estate agents and developers are responding and using the upsurge in demand to rebuild their sales pipelines and open up their developments.
“We see returning pent up demand and new buyers entering the market creating upward pressure on prices in the face of a lower supply of homes for sale which has been exacerbated by the lockdown. House price growth is set to hold up in the near term and we expect the downward pressure on prices to come in the final months of the year as demand weakens.
“While the average asking price for homes marked as sold on Zoopla are 7% higher than a year ago this is down to an increase in sales in higher value markets where activity has remained subdued in recent years. We do not expect the rate of growth in the Zoopla House Price Index to reach this level, rather it is expected to hold steady at 2%.
“The Welsh housing market opened this week and levels of demand have already returned close to the levels seen in England in anticipation of the market reopening. Scotland, where the market reopens on 29 June has also seen demand rise back to pre-COVID levels but sales remain more than two thirds lower and are expected to rebound in the coming weeks.”
Figure 1: Index of demand, sales and new supply of homes for sale
Source: Zoopla Research
Figure 2: Index of housing demand for sales - Wales, Scotland and England
Source: Zoopla Research
Figure 3: Available supply of homes for sale compared to last year
Source: Zoopla Research
Figure 4: New sales agreed compared to February 2020
*Demand refers to individuals who are actively viewing and engaged in finding out more about property, which includes enquiries and browsing online.
** The annual growth in asking prices is based on Zoopla data for homes marked as sold subject to contract. It is a non-mix adjusted series and not directly comparable to the Zoopla House Price Index.
***The Zoopla UK House Price Indices is collated using over 100,000 data points, including asking prices and valuations, making it one of the most robust and accurate indices in the market.
Notes to editors
About Zoopla’s UK House Price Index
Zoopla’s House Price Indices are based on the largest underlying data sample of any UK house price index. The 20 cities covered by the index contain 35% of the UK housing stock by volume and 43% of capital value. Our index FAQ’s have all the information about our indices and how they are run. Data for the index is powered by Hometrack, a part of Zoopla. Hometrack is a leading provider of automated property valuations and statistical property market insights in the UK to over 400 partners including mortgage lenders, developers, investors, government agencies, housing associations and others.
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