Of course, we don’t know the answer to this question. As we write this note, the UK has been in lockdown for over 5 weeks with no concrete announcement as to when measures may ease. Estate agent’s doors have shut and while there are reports of some sales being agreed and even completions taking place, very little activity in the housing market is taking place. With few transactions going through, transaction data for April and May is likely to show the lowest ever level of monthly sales.
However, that was not the story of the first few months of 2020. After all the uncertainty around Brexit and the election during 2019, 2020 began fairly positively with much speculation of a ‘Boris bounce’. With demand and confidence building, the RICS reported a rise in new sales activity in the first couple of months of the year, sales completing in January and February were 4% higher than a year earlier, applicant registrations multiplied and agents began to build up a pipeline of agreed sales.
Then Covid-19 brought the market to a standstill. Those agreed sales have not all disappeared though, as confirmed by our agent survey. A few weeks into lockdown, 68% of agents reported that the vast majority of buyers remained committed to their purchases with another 31% reporting a mix of reactions from buyers. Just 1% of agents had seen the majority of purchasers withdraw from their transactions. Meanwhile Zoopla report that 373,000 sales were placed on hold at the beginning of lockdown.
That said, it is inevitable that a proportion of the 373,000 sales agreed before lockdown will fall through as buyers seek to renegotiate prices, their financial or personal situations change, or they simply change their mind. We have taken all of this into account to draw up a set of scenarios for how transactions might pan out over 2020. In this blog we set out our central scenario.
Starting from the Zoopla view of sales agreed before lockdown we made adjustments based on our own assumptions. We adjusted downwards to account for fall throughs, then upwards for new sales agreed once lockdown lifts. It assumes that some elements of lockdown lift from June onwards allowing for some sales to be agreed, and gradually rising to more normal levels in October.
In total, under this scenario, we estimate that just under 880,000 property sales will complete in 2020. There are many views on the impact of the Covid-19 pandemic on transaction levels in 2020, most range from a fall of 20% to 40%. Our scenario represents a 25% fall on 2019 levels.
August looks set to be the busiest month of the year for agents and those involved in the conveyancing process as they process a combination of delayed transactions and sales agreed post-lockdown. While under this scenario, sales completed will be similar to August 2019, it remains to be seen whether the sector will be geared up to respond to the rise in volumes.
With transactions at low levels, it is understandable that questions are being asked as to what might happen to house prices. Will prices crash in coming months? At this stage, we don’t believe that this will happen. For prices to collapse the market would need to be flooded with forced sellers. It is fair to say that many homeowners’ incomes will have taken a hit during this period and unemployment levels are set to rise. However, with mortgage holidays offered by the banks, the furlough scheme (for both the employed and self-employed) and other financial support for businesses and the economy, a cushion of support is buffering many households. At the same time, we know that there were many buyers looking to buy before Covid-19 and many believe that this pent-up demand is still building and will spill into the market in the months following lockdown. It may happen gradually and recovery may take some time, but confidence will return. It always does.