Property prices are affected by a range of factors including supply and demand, what the economy is doing, Government policy and interest rates. Property prices, at least in the UK, haven’t been affected by a pandemic of the scale of Covid-19 before.
In the current situation it is extremely difficult to forecast prospects for property prices this year. But in this report we will look at what a range of different experts are predicting could happen to property prices in the rest of 2020 and beyond.
Firstly, the Bank of England has forecast that house prices could fall by 16% over the coming months. This is based on their projections of the economy shrinking by a quarter in the April-June period, which would be the largest fall since the early 1700s. The Bank of England adds, however, that the economy and so house prices could recover ‘relatively rapidly’ in the summer and autumn of 2020.
RICS, the Royal Institution of Chartered Surveyors, carries out a regular survey of opinions amongst its members across the country. The latest RICS UK Residential Market Survey suggests that, as the housing market gradually reopens, a 4% fall in house prices could be regarded as a benchmark.
RICS say: “Thirty five percent of the survey participants believe that when the market reopens, prices could be left up to 4% lower, while more than 40% take the view that prices could in fact fall by more than 4%.” They add: “Feedback suggests that a recovery in prices could take a little while longer than sales levels, with respondents suggesting, on average, prices will recover in eleven months.”
Longer term the RICS survey suggests house price growth going forward could be around 2% per annum over what it calls a five year horizon.
The Centre for Economics and Business Research (CEBR) has forecast that UK house prices will fall by 13% by the end of 2020 following a drop in housing transactions due to a fall in incomes and a recession.
CEBR adds that owners of rental properties and home owners in regions with vulnerable jobs markets, such as Yorkshire and the Humber and Northern Ireland, could be affected most.
Knight Frank forecast that house prices would fall by just 3% across the UK back in April. However more recently they have revised their forecast upwards to around 5-7%. In their latest Residential Market Update Liam Bailey says: “We are in the early stages of ‘price discovery’ in the UK residential property market.
“In similar fashion to the period that followed the EU referendum, buyers and sellers are attempting to gauge correct pricing levels against a disorientating backdrop.
“We forecast a decline of 7% in UK markets and 5% in prime London markets. Much of this adjustment has already taken place although the backdrop of record GDP declines over the summer will dampen sentiment.”
Savills suggest that property prices generally could fall by 5-10% this year. property prices generally could fall by 5-10% this year. Lucian Cook, Director of Residential Research says that it will, however, depend on how long financial support to homeowners lasts and the extent to which the economy rebounds after the pandemic.
Cook says: “In the short term, we expect downward pressure on prices in the mainstream market to be tempered by the extension of the furloughing scheme and the benevolent approach taken by lenders to existing borrowers. That means we remain of the view that over the course of this year they will probably fall by in the order of 5-10%, rather than the much greater falls seen in the early 1990s and in the wake of the credit crunch.”
He says that the prime property market (mainly central London) could be less affected and that in the longer term Savills are optimistic about prices with a continued expectation of price growth over the next five years.
Finally the latest Nationwide Building Society House Price Index report says that house prices grew 3.7% in April, before Covid-19 took hold, which was the fastest rate for over three years. But it points out that the impact of the pandemic was not fully accounted for in those figures as the market had not yet come to a halt when they were prepared.
Unlike other experts Nationwide's Chief Economist, Robert Gardner, did not make a percentage forecast but suggested the impact of Covid-19 on house prices may not be as great as anticipated. He said: “The medium-term outlook for the housing market is also highly uncertain, where much will depend on the performance of the wider economy.
“Economic activity is set to contract significantly in the near term as a direct result of the necessary measures adopted to suppress the spread of the virus.
“But the raft of policies adopted to support the economy, including to protect businesses and jobs, to support peoples’ incomes and keep borrowing costs down, should set the stage for a rebound once the shock passes, and help limit long-term damage to the economy.”
He concluded: “These same measures should also help ensure the impact on the housing market will ultimately be much less than would normally be associated with an economic shock of this magnitude.”
