The latest Zoopla UK Cities House Price Index, powered by Hometrack, recorded house price growth in February 2020 at +1.6%, higher than the +1.2% a year ago. That said, in recent weeks coronavirus has had a rapid impact on housing demand, which is 40% lower in the last week. Transaction volumes are set to decline by an estimated 60% in the next quarter with a further fall in sales volumes over Q3 2020.
A rebound in consumer confidence saw the housing market register the strongest start for 5 years in early 2020, after a weaker period of growth over 2019. A rebound in consumer confidence resulted in the headline rate increase to +1.6%, compared to +1.2% a year ago.
At a city level, annual growth ranged from +3.8% in Nottingham to -2.2% in Aberdeen. In London, the annual growth rate was +0.6%, up from -1.2% a year ago. Quarterly house price growth was negative in the year to May 2019 but turned positive, taking the annual growth rate higher.
Despite the strong start to the year, the arrival of coronavirus totally changed the dynamics of the market and the outlook for 2020. Buyer demand initially fell 40% as households self-isolate and put major decisions on hold. Demand is set to fall further now the UK is in a 6+ week period of lockdown.
In normal times it takes 2-3 months for sales that are ‘sold subject to contract’ to reach completion. We expect a reasonable proportion of recent purchases agreed in the last six to eight weeks to complete.
However, there has been a rapid increase in the number of sales being marked as fallen through as uncertainty over coronavirus leads to buyers to pulling out of sales. Fall throughs in mid-March were 60% higher than the previous week but new sales agreed shortly after remained higher than fall-throughs by a ratio of 4 to 1.
On the supply side there has been no evidence of major withdrawal of homes from the market. Indeed, new stock has continued to be listed, albeit at a slowing rate. For those with homes for sale, agents are engaging their clients about the evolving market outlook and how best to respond.
The timing of any rebound in housing market activity depends upon when new restrictions are lifted and the extent to which households and businesses can start returning towards a normal way of life. In the worst affected parts of China, the lockdown lasted more than months before restrictions were lifted.
While demand in property may rebound quickly it will take several months for agents to build a pipeline of sales dependent on their ability to transition to virtual activity during the period of lockdown.
Zoopla doesn’t expect any sudden changes in house prices in the short term. A proportion of sales agreed over the last two months will continue to completion and the rate of city level house price growth is unlikely to change in the next one to two months.
Most of today’s sellers do not need to sell, and they can withdraw their homes off the market until the outlook becomes clearer. Double digit house price falls tend to occur in times of economic stress where there is a jump in the number of forced sellers – typically a result of rising unemployment, a lack of credit or higher borrowing costs.