ARK’s Market Synopsis

By Chris Seeley · 30 October 2020

Welcome to the latest edition of ARK’s Market Synopsis report covering market outcomes to the end of August and with Rightmove picking up reporting for September. We have also included the Regulator for Social Housing Q1 report in the final section of this report.

Commentary

House prices in August seem to remain positive across all reports. Halifax states a 1.6% increase in house prices, on a monthly basis. But outlooks are less positive along with Nationwide, Halifax expects labour market conditions and the housing market to weaken over the upcoming months.

We expect changes in buyer behaviours and property type demand (greater interest in homes with gardens and decent outside space) to significantly shift as an outcome of the pandemic and the RICS reporting supports that view stating “the pandemic is expected to cause a lasting shift in the desirability of certain property characteristics, as 83% of respondents anticipate demand increasing for homes with gardens over the next two years.”

The RICS report shows buyer enquires decreasing slightly with a net balance of 63% of contributors reporting an increase in buyer interest during August (75% in July). In addition, RICS reports a ‘strong growth’ in agreed sales with a net balance of +61% of contributors seeing a pick-up (+58% in July). Near term sales remain positive with a reading of +21% in August. With that said, 12-month projections remain in negative territory.

Moving to house prices, at national level RICS reported a +44% increase in prices, the strongest reading since 2016.

House prices increase in Hometrack’s reporting with the annual UK growth rate at +2.6%. Hometrack further mentions that completed sales are set to be 15% lower than in 2019.

Hometrack say we have seen FTBs being the driving force for sales. With that said, when looking at demand by purchaser type since Feb-2020, Hometrack identifies a gap opening between FTBs and homeowners. FTB demand has lost momentum due to the growing uncertainty and reduced availability of higher LVT mortgages. Demand for FTB has fallen in line with pre-COVID levels and is expected to decline slowly over the rest of 2020.

The decline in lower LTV mortgages is a significant factor and one to a large extent beyond the government’s levers for boosting the market. It more greatly affects FTB’s and lower income buyers such as those buying shared ownership homes and we do expect this to impact, not so much demand, but buyer’s capability to purchase.

The immediate outlook will be heavily skewed by governmental responses to the second wave of Coronavirus. Recently, we saw England being introduced to the three-tier lockdown system by the Prime Minister to help reduce the spread of the Coronavirus. The change comes after the market experiencing a strong rebound.

Under the government’s new advice (in England and Scotland), where possible, virtual viewings should be carried out before visiting properties in person in order to minimise public health risks. You can still move home if you are in a high alert (Tier 3) level area. Estate and letting agents and removals firms can continue to work and people looking to move home can continue to undertake viewings.

On 23rd October until 9th November Wales is in a firebreak lockdown to help regain control of Coronavirus. This means that the housing market will be shut for two weeks.

With all of these new restrictions in place, it is likely for us to see a dip in market activity.

The housing market is affected by sentiment (see Hometrack sections 5.11 and 5.12) and uncertainty, what coronavirus and the responses to the pandemic provide is uncertainty and that affects sentiment and reduces positivity, all of which add up to a challenging outlook.

But demand for new homes caused by the rate of newly forming households and the historic deficit in provision have not gone away; the demand for affordable homes, without a significant change in funding levels will exceed supply for years to come.

FTB’s, in the absence of lower ratio LTV mortgages and possibly more uncertain of their employment prospects may well turn in greater numbers to market rented homes as a solution to their near term housing needs, and the RICS (see section 4.6) anticipate greater demand in this area.

Click here to read the full report.