The proverbial handbrake has been applied to the UK housing market in a very sudden fashion. As market analysts, we're starting to wonder what the short, medium and long term effects will be. As a reminder, the average annual rate of growth in Leeds over the last 20 years has been 9.2%, but what happens next?
The first thing we want to emphasise is that there are a lot of very good reasons to think the market will bounce back quickly. When the market reopens for business, there will be a lot of positive sentiment, pent-up demand and buyers relishing the prospect of rock bottom interest rates. Another driver will be people wanting a new start, having had some thinking time.
Of these positive factors, the most important are interest rates. The main reason the property market ground to a halt in 2009 was the sudden evaporation of mortgage finance. In 2020, we are in a totally different position - the financial infrastructure which supports the UK housing market is in very good shape. While the lock-down will adversely affect many households, more still will be largely unaffected and still confident about their ability to service mortgage payments. For these people, lower interest rates may make moving irresistible, particularly when coupled with other personal motivations. In this scenario, families may be able to afford a bigger property in the same area for the same or less than they’re currently paying each month. For anyone feeling claustrophobic during the lock-down, this may sound like a dream come true.
Unfortunately, there may be ways in which personal misfortunes may fuel the property market as we come out of lock-down. There is a common saying that ‘death, debt and divorce’ are the key drivers of the housing market. Sadly the Covid-19 pandemic has the potential to increase rates of all three which could translate into higher transaction volumes. If these factors start to influence the market significantly, we would likely see a shift in power towards buyers. It rather depends on the degree to which factors which might force people to sell weigh up against the low interest rate environment. If they balance each other out, there is a chance that the market could find a new equilibrium which means things can pretty much pick up where they left off.
But there are also potential clouds in the sky. In the short term, the market could be paralysed by buyers holding off from buying until they get some visibility on price movements. Longer term, it is possible that the period of economic inactivity were currently experiencing causes a global depression and the unemployment which comes with it.
On the whole we're positive about the outlook for the property market in the 12 months which follow the market reopening. We're less certain about what happens after that, and we are very much in uncharted territory. If you want to get a head start when the market comes back to life, don't hesitate to give us a call!
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