As the property market reopens it is hard to difficult to predict the length of time it will take to recover – here’s why
On Wednesday this week, estate agents were given the green light by the Government to reopen their doors and begin showing properties to prospective buyers and renters again. It is indicative of the property market’s importance within the larger economic picture that this is one of the first sectors to “get back to work”.
The United Kingdom has traditionally been a “nation of home-owners”, with higher property ownership rates than elsewhere in Europe. House prices, therefore, have a larger impact on a person’s perceived wealth and a correspondingly larger impact on consumer confidence.
Agents will no doubt be delighted to reopen their doors with the prospect of starting again to generate fees after a period of huge uncertainty. However, it remains to be seen how much activity they will realistically see with the public still currently being told to stay at home whenever possible.
I can imagine that for many, unless there was a pressing need to move house, they will give it another few weeks for the epidemic to abate before starting viewings. I also wonder how many people currently living in homes being viewed, either as seller, or current tenant, will be too enthused about strangers trooping through their living rooms.
Throughout the COVID-19 lockdown, there has been widespread speculation on what’s happening now and what the remainder of 2020 will look like for the economy as a whole, which all sounds pretty bearish, and for the housing market in particular, which is surprisingly varied.
I believe the reason for the divergence in opinion is twofold:
Gathering live data on the property market in the UK is difficult in normal times.
For those unfamiliar with property transactions in the UK, it is a complex process. The market is private as opposed to public, meaning properties are listed by agents on behalf of the vendor who then brokers a deal between a buyer they introduce and the vendor. Lawyers then get involved to arrange a contract for sale.
Finally, an exchange of contracts is achieved followed by a completion where the house or flat becomes the property of the new owner.
Some weeks after this, the data is logged with the official repository: The Land Registry. Once a month the Land Registry publishes its latest data.
From some simple analysis done by Bricks&Logic as part of our algorithms to “predict” a live price, we analysed the lag between a completion date and the data being available to view at the Land Registry.
In the first week of May, the following data was available for January this year. A total number of 3,664 sales in London were recorded and the median delay (that is the amount of delay at which 50 per cent of the total had been received) was 8 to 9 weeks after the completion date listed.
Of course, there are ways to predict the data before it arrives. At Bricks&Logic, we survey agents and add their sentiment to a model that compares it to previously received sentiment where the end result is now known.
There are also ways of gathering ancillary data, such as mortgage approval numbers to use as a proxy for the strength of buy sentiment which can be similarly compared to historical data.
Either of these methods are subject to constant revision as more data flows through from the Land Registry for the period, but with agents’ doors closed and buyers with their mortgage approved probably worrying about other things, it is doubtful that either are going to help in understanding the market as it re-opens. I think it likely will be a case of wait and see.
2. Lack of precedent
Forecasters typically use precedent to make their predictions. By looking at similar scenarios in the past and valuing potential differences a prediction is made.
However, this crisis, its effects and remedies are wholly unprecedented. As well as economic factors such as “Will I have a job to go back to?”, “Can I afford a new house?”, forecasters must now also consider whether new factors post-lockdown will become drivers in the market.
“I need outside space/more space/to leave London”, are all potential considerations that may carry substantial weight and impact on the market.
Before readying yourself for a drop in prices, the state of the market coming into the crisis must be considered. After several years of stagnation in average pricing, the second half of 2019 saw the start of a strong upwards trend in pricing which may well carry some support through the rest of 2020.
Finally, while a lot of people like to talk about house pricing as a single number, we have shown in several of our blogs and using our property market overview that, even in London alone, price movement varies hugely depending on where and what you are pricing. With the economic impact unlikely to affect every group equally, we may see that divergence in performance between types of property widen.