Where next?

Of course what everyone would like to know is “what will happen to house prices once this is over?”. On Twitter I find there are quite a few estate agents who would prefer not to speculate – one or two feel that it would be self-fulfilling to do so but of the 100+ ‘Covid Clinics‘ I have run over the past ten days this is the question that almost every single one asked.

Ray Boulger at Charcol warned in mid-March that prices ‘could’ fall by 10%. Jefferies, analysts for whom I don’t have much time were quoted as suggesting perhaps 20%. My friends at Savills are, I think, more measured in their expectations with Lucian Cook suggesting to Melissa Lawford in The Telegraph last week that prices might slide but 5-10%.

My own view is that 5-10% is a reasonable starting point but that it really could be much worse. The nations finances will be in a mess. Personal finances will in many cases be shot through. Unemployment is bound to rise and remuneration for many will be 20-30% lower than it was in February. Whilst UK Finance has said that people who take mortgage holidays or rent postponements should not see this impact on their credit scores will lenders really be disinterested? If you didn’t have the ability to survive the Corona Shock in the first couple of months are you really the sort of person who should be lent half a million?

The last comparable market shock was the Global Financial Crash. House prices fell – in Northern Ireland they are still 40% below their peak reached in July 2007. I expect that we will find that supply picks up quite quickly (driven by the 3 D’s – Death, Debt and Divorce) buyers usually take six months to regain their ‘mojo’. It takes up to half a year to get over a referendum or General Election for buyers to be confident of borrowing a lot of money and of spending on what for most is their biggest financial outlay.

The first miles stone is the week after Easter, traditionally the start of the main selling season and often the busiest weekend for estate agents in the year. If the lock down is lifted then we ought to see what’s happening in the next four weeks. Are buyers reducing their bids? Are sellers prepared to accept them? I suspect that it will be July before we can spot the trends.

By the summer we will know if prices have slipped, if they have by how much and have a better understanding of where they might be heading.

Whilst there are a lot of people who expect prices in due course to be lower I don’t know one single person who thinks they will be heading up!

The harshest buyer is probably an investor. They don’t care so much about the look or feel they are looking for (preferably) a 6%+ yield. This is how they will do the calculation.

James Pickford has written what many consider is the definitive summary of expectations in April 2020. There is some really useful advice for both buyers and sellers but my own conclusion is “There will be some buyers who are prepared to commit but the majority take six months to get their confidence back after a seismic event. They’re not going to be back in the market in serious volumes until the new year. That’s assuming this is all over by July — which may not be the case.”

UPDATE – The latest RICS monthly survey suggests that most surveyors are concerned about prices and transactions over both the next 3 and 12 months.