Has the summer boom of activity continued?
In the summer, once restrictions were eased post lockdown, prices and housing market activity picked up quite rapidly. This pick up has been backed by data which confirms house prices continue to rise. For example, Nationwide’s latest data shows that in October 2020 annual house price growth was about 5.8% – a five year high. This was reinforced further by Halifax, which also recorded a 7.5% year on year rise in October. Moreover, Rightmove showed a rise in asking prices by 1.1% on a month by month basis in September. This all points towards the strong growth in house prices seen in the summer, continuing further into the year.
HMRC transaction data, Bank of England data on mortgage lending, and RICS information on balances activity, have all been robust and strong. Again, confirming the momentum gained from the summer has carried on into October.
Two points to consider:
- The first being that this is in line with our predictions earlier in the year, but also that this growth was underpinned and boosted by a huge amount of government support like the furlough scheme. We expected data on prices and activity to stay positive until the furlough scheme ended, which was originally set to end on October 31st.
- The second thing to note is that when we compare month to month trends, it shows August has been the peak of house price growth and has been slowing since. Therefore, September was weaker than August on all indices, and October has thus been even weaker than September. Rightmove data shows October asking prices to have marginally dipped by half a percent, something that will be interesting to monitor as we continue through 2020 and into next year.
According to these latest trends, our predicted pattern of recovery is on track as expected. The only variants are timing and the extent of that recovery. Since the summer, the furlough scheme has been extended from October 31st to March 31st with the Emergency Payment Holidays extended to January 31st, this pushes the declines expected in Q4 into 2021.
2020 will end on a more positive outlook concerning growth in house prices because Q4 will be heavily bolstered by enhanced government measures. This means, depending on the index we are looking at, it would be a growth between 3-5%.
What trends do we expect in 2021?
As for 2021, the declines that have been delayed will have their impact by the end of Q1. This is when we expect to see the unemployment rates pick up further as furlough ends and though it will be a softer peak, it will still be a hit on the economy and a drag on buyer demand. We may have the vaccine which boosts economic confidence, but the rollout will take time, and the impact of the boost created by the vaccine will only be short-term.
In addition to this, tighter credit conditions will begin creeping in during 2021, and as a result of the aforementioned factors, we are expecting a softer 2021 compared to the previous outlook. We are expecting growth to be flat or marginally negative, but it is important not to be caught up in the headline UK number as average headline UK numbers mask a lot of local and regional area diversity. For example, some areas might see flat growth next year or even marginally positive growth, whereas, in some areas, the pain will be felt more due to their particular economic recovery pattern.
To conclude, the outlook has been revised to a more robust 2020 outlook at the cost of a weaker 2021 on average but it does mask regional diversity.