- The Halifax reported prices dipped 0.2% month-on-month in May, which was a third successive decline. The annual rate of increase moderated to a six-month low of 2.6% in May from 2.7% in April, and a peak of 4.1% in January (which had been the highest level since February 2018)
- The early-2020 upturn in the housing market was brought to a halt by the impact of coronavirus on the economy, households and people’s movements. Indeed, the housing market was at a standstill from late-March through to mid-May, following the introduction of the lockdown. Bank of England data showed mortgage approvals for house purchases were a record low of just 15,848 in April
- Relief for the housing market in England has come from an easing of restrictions on 13 May
- Survey evidence suggests that the mid-May easing of housing market restrictions in England caused an initial surge in buyer interest and activity. Nevertheless, there are uncertainties over how the housing market is likely to develop over the coming months
- Despite the easing of restrictions on the housing market, the EY ITEM Club suspects that the upside to activity may be limited for some to come
- Consequently, the EY ITEM Club suspect house prices will fall back around 5% over the next few months
- Housing market activity is likely to be limited in the near term at least by the impact of coronavirus on the economy and the fact that consumer fundamentals appear to have taken a downturn
- The EY ITEM Club expects house prices to stabilise towards the end of the year and then start recovering gradually as the UK’s economic recovery gains traction, the labour market starts to recover and consumer confidence improves. Very low borrowing costs should also help matters with the Bank of England unlikely to lift interest rates from 0.10% until well into 2021. Even so, the EY ITEM Club expects house price gains to be no more than 2-3% in 2021
Howard Archer, chief economic advisor to the EY ITEM Club, comments:
“The Halifax reported house prices dipped 0.2% month-on-month in May. This was a third successive monthly decline following drops of 0.6% in April and 0.3% in March.
“The annual rise in house prices moderated to a six-month low of 2.6% in May from 2.7% in April and 3.0% in March. It had earlier peaked at 4.1% in January (the highest level since February 2018) which was up from just 0.9% in October 2019 (the lowest since April 2013).
“House prices were down 0.5% in the three months to May compared to the three months to February. This contrasted with three-month/three-month gains in house prices of 0.7% in the three months to April, 2.0% in the three months to March and 2.8% in the three months to February.”
“The Halifax said, “it should still be noted that with a limited number of transactions available, calculating average house prices remains challenging and increased volatility is to be expected”.
“Nationwide had earlier reported that house prices fell back 1.7% month-on-month in May. This was actually the first monthly drop on the Nationwide measure since last September and the largest since February 2009. The annual rate of increase more than halved to 1.8% in May from 3.7% in April, which had been the highest since February 2017 and up from an 8-month low of just 0.2% in September.”
Housing market came to a standstill in late March through to mid-May due to coronavirus restrictions
Howard Archer continues: “The housing market was essentially at a standstill from late-March through to mid-May as the Government advised homebuyers and renters to delay moving as much as they could while the emergency measures were in place. The lockdown introduced on 23 March meant that no visitors were allowed to visit properties while ‘stay-at-home’ measures were fully in force, including estate agents and surveys as well as potential buyers.
“The Bank of England shows mortgage approvals for house purchases fell back to a record low of just 15,848 in April (the series started in 1993 – the previous low was 26,359 in November 2008). Approvals were down from 56,136 in March and a more than six-year high of 73,660 in February.
“The April RICS survey reported that its findings “suggest that the government’s ongoing lockdown measures to prevent the spread of the coronavirus are continuing to stifle activity across the housing market. With estate agents still closed in April, key activity indicators remain entrenched in negative territory.” Specifically, the survey showed record low balances for instructions to sell (-96%), newly agreed sales (-92%) and new buyer enquiries (-93%).
“Prior to March, the housing market had enjoyed an improved performance over the first couple of months of 2020 and at the end of 2019 as it benefited from increased consumer confidence and reduced uncertainties following December's General Election.”
Relief for England’s housing market
Howard Archer comments: “Relief for the housing market in England has come from an easing of restrictions on 13 May under which buyers and renters can once again view properties physically, arrange removals and move home. However, viewers must keep a two-metre distance from others, wear gloves where necessary while also keeping high-risk owners out of the home during a viewing.
“Zoopla reported that there was an 88% rise in buyer enquiries after the housing market restrictions were lifted in England, although new sales agreed were up by a lesser 12%.”
Outlook for the UK housing market
Howard Archer adds: “The EY ITEM Club suspects house prices will fall back around 5% over the next few months.
“Despite the easing of restrictions on the housing market, we suspect that the upside to activity may be limited for some to come.
“Indeed, a survey by Zoopla found that 41% of those asked had put moving plans on hold owing to the uncertainty, loss of income, or future prospects for their finances.
“Additionally, Nationwide reported “our recent market research survey suggested that c12% of the population had put off moving as a result of the lockdown. Most viewed the current situation as a temporary pause in the market, with would-be buyers now planning to wait six months on average before looking to enter the market.”
“Housing market activity is likely to be limited in the near term at least by the impact of coronavirus on the economy and the fact that consumer fundamentals appear to have taken a downturn. Many people have already lost their jobs, despite the supportive Government measures, while others will be worried that they may still end up losing theirs once the furlough scheme ends. Additionally, many incomes have been affected. Consumer confidence is currently at or near record low levels and many people are likely to remain cautious for some time to come when making major spending decisions such as buying or moving house.
“The EY ITEM Club expects house prices to stabilise towards the end of the year and then start recovering gradually as the UK’s economic recovery gains traction, the labour market starts to recover and consumer confidence improves. Very low borrowing costs should also help matters with the Bank of England unlikely to lift interest rates from 0.10% until well into 2021. Even so, the EY ITEM Club expects house price gains to be no more than 2-3% in 2021.”