The UK housing market is coming out of its deep freeze. After two months of online-only viewings, estate agents are donning masks and gloves to start showing properties to buyers, with the owners retreating outdoors to stay at a safe distance
But despite upbeat statements from housebuilders such as Taylor Wimpey, which said on Friday it was now seeing more “sustained demand”, there is intense unease about the potential for the coronavirus crisis to trigger a house price crash to rival that seen after previous recessions.
“It’s nervy times,” said David Boyden, managing director of an estate agency in Colchester. In the last month, he had seen inquiries rise at all price levels, but had also seen transactions fall through as buyers got cold feet or tried to lower offers. “There is a lot of hot air, a lot of activity, but not a lot of fat on the bone to show for it as yet,” he said.
The fortunes of the housing market matter, because it may be the best gauge of consumer confidence, at a time when even households whose finances are so far unaffected by the crisis have few outlets for spending. A recovery in activity would be a welcome boost to demand — while house price falls would make homeowners more inclined to build up savings.
But analysts say it is not yet clear whether an initial flurry of inquiries as the lockdown loosens will translate into any meaningful increase in activity.
The property portal Zoopla last week reported a surge in the number of people making active inquiries, with demand exceeding pre-lockdown levels in England. But its index, produced by the research group Hometrack, also showed new sales agreed had risen only slightly from the depths plumbed during the lockdown, while a survey suggested 40 per cent of would be buyers had put their previous plans on hold.
Noble Francis, economist at the Construction Products Association, said that while housebuilders were keen to complete work at existing sites, they would be very wary of starting new developments until they had a clearer picture of the outlook for activity, and for prices.
House price indices published by the lenders Nationwide and Halifax recorded price drops between April and May, but the data is likely to be volatile given how few sales there have been: in April, mortgage approvals were at less than half the level seen at the trough of the 2008 crisis.
Most analysts expect prices to fall over the next year, but forecasts vary from a modest fall of 4 or 5 per cent to Nationwide’s prediction of a 14 per cent drop — which suggests it will be cautious in lending.
Neal Hudson, an independent analyst, said activity would be held back in the short term because lenders would be cautious of approving mortgages for anyone with a small deposit, especially to self-employed people with insecure incomes, or to those currently furloughed by their employer.
This could lead to “a reinforcement of inequality in access to housing”, he said, with a small group of people who had kept their jobs supporting prices, while others were shut out of the market.
But the big question is how far unemployment will rise as the government withdraws support for wages, and how many people might be forced to sell their homes once mortgage holidays end.
The Bank of England’s financial policy committee has said that a fall of 16 per cent in residential property prices could be consistent with the monetary policy committee’s central economic scenario, under which unemployment is set to rise to around 10 per cent.
Forbearance from lenders might limit forced sales. Previous experience has shown that resorting too swiftly to repossessions is not necessarily in their interest, since it drives down prices. Nationwide has said none of its borrowers affected by Covid-19 will lose their home in the next year.
Homeowners are also better placed to withstand an income shock than in the past: the BoE notes that only 1 per cent of households have a high debt servicing ratio — far fewer than in 2007.
However, there could be other factors bearing down on prices.
On Friday, the government announced an extension of the stay on evictions for tenants who run into rent arrears. But if large numbers of renters run into trouble later, falling returns on buy-to-let properties could lead landlords to leave the market.
A drop in student numbers could end the boom in purpose built university accommodation; the market in city centre Airbnb lettings has dried up for now; while job losses in the worst-affected industries — such as aviation and carmaking — could have a big effect in local markets, Mr Hudson said.
“House prices are sitting on a knife edge,” wrote Hansen Lu, at the consultancy Capital Economics, which predicts only a modest 4 per cent price fall this year. “If the economy is worse than we expect or sentiment were to take a further downward turn, a house price crash could be on the way.”