What will happen to house prices after the coronavirus lockdown is lifted?
The Times | 05 Jul, 2020
Prices are predicted to fall, but there may be a lack of homes for sale as older people are unable to downsize.
“Get ready for the sale of the century. Buyers and sellers have never been funnelled into a bottleneck like this in history . . . Covid-19 has created a build-up of pressure that could make the Boris Bounce look like a pea shooter,” says Lucy Pendleton, the managing director of James Pendleton, a London estate agency.
She is more upbeat than most. Savills has calculated that a predicted 1.06 million house sales in 2020 could fall to 495,500 sales, with prices falling by 10 per cent, or to 652,634 sales, with price falls of 5 per cent. Knight Frank estimates a fall in transactions of 38 per cent, with price falls of 3 per cent across the property market. Added to which there will be 56,000 fewer new homes built this year. Meanwhile, analysts at Deutsche Bank have said that house prices could fall between 9 and 23 per cent, roughly in line with predictions by Jeffries investment bank.
Oliver Knight, a residential research associate at Knight Frank, says: “If we assume that the current lockdown is maintained through to the end of May, this will obviously have a dramatic impact on sales volumes. Sales will slow sharply over the next quarter before an uptick in the final half of the year. We expect the revival in activity will continue, with volumes next year expected to be 18 per cent above the level seen in 2019, though this expansion in sales in 2021 will not fully offset the losses seen this year.”
Knight Frank, along with many in the industry, is calling for government incentives to ease market liquidity, including a reduction in stamp duty. However, with Savills predicting that the Treasury will lose between £3.47 billion and £4.78 billion in stamp duty this year, it seems an unlikely move.
Despite the disparity between predictions, many agents warn that when lockdown lifts there could be a stand-off between bargain-hunting buyers and sellers keen to stay firm on pricing.
Jonathan Mount, a director at Sterling Private Office, a buying agency, believes that it could take “at least six months before sellers realise prices have softened”, adding: “It will take a people a little while to accept the new normal.”
Ben Horne, a buying agent with Middleton Advisors, agrees. “Sellers will want to wait and see evidence that the market is moving if they can,” he says. “If you are selling for any reason other than divorce, debt or death, I think you might hold off, which will mean we could see a shortage of property on the market.”
What will this new normal look like? As ever in the property market it depends on what you are selling or buying and where. Mount says: “I think that the London super-prime market — properties costing £10 million or more — is going to suffer from greater supply than demand and we could see price drops of 10 to 15 per cent. This could be the opposite of what we see in the country market, where there may be high demand and a lack of stock.
“We will also see increased demand and more cash buyers looking for properties between £1 million and £3 million. The vast majority of sellers will need to rethink pricing by about 5 to 10 per cent, although if there are another ten similar houses down the road the pricing may need to come down by 20 per cent.”
He suggests that generic homogenous new-build homes will take the biggest hit, while best-in-class homes in desirable locations could achieve record prices. “There will be a real widening of the gap between different properties,” Mount says. “The availability of stock is going to be the real challenge, especially as a whole generation [of older homeowners] is likely to be in lockdown for longer and not prepared to let people into their homes this year. This could mean a lot of potential downsizers can’t move, which will stymie the market.”
This time could be particularly difficult for potential buyers who have committed to new schools in September; they could be forced to compromise because of a lack of homes for sale and rent.
The way in which we buy and sell property will change. No one quite knows what the new normal will look like, but agents are busy drafting their own protocols to find a way to ensure that everyone is happy and safe. Horne, for example, suggests asking if the vendor would mind being in the garden while the potential buyer views. Others predict that virtual tours, video conferencing and detailed new-build-style plans will continue to be popular even as the country gets back to business, to cut down the number of actual visits, with empty properties having the edge in terms of viewing conditions.
What most experts do agree on is that buyers need to line up solicitors who, Mount says, can be “responsive, act fast and build flexibility into contracts”, and use a mortgage broker who can get some stability on a deal that won’t be pulled if we go into another lockdown. Mount also says he thinks that perhaps reservation deposits — as used when buying new-build properties off-plan — could become more popular as sellers look to reduce the risk of deals falling apart if another lockdown is imposed.
Friday May 01 2020, 12.01am,