House prices fell sharply for the second month running in June as the impact of the economic slump triggered by the lockdown starts to feed through to the property market.
The outlook for prices remains highly uncertain as the average value of a home dipped 1.4 per cent in June. This follows a 1.7 per cent drop in May. They are the biggest monthly declines since the financial crisis in 2009.
These consecutive falls mean that prices are 0.1 per cent lower than a year ago across the country as a whole, the first annual fall since 2001.
However, while the figures are bad, there are few signs yet of a full scale collapse on the scale seen during the banking crisis or the early 90’s recession.
It is unsurprising that annual house price growth has stalled, given the magnitude of the shock to the economy as a result of the pandemic. Economic output fell by an unprecedented 25 per cent over the course of March and April – almost four times more than during the entire financial crisis. Housing market activity also slowed sharply as a result of lockdown measures. With lockdown measures due to be eased in the weeks ahead, housing market activity is likely to edge higher in the near term, albeit remaining below pre-pandemic levels. Nevertheless, the medium-term outlook for the housing market remains uncertain. Much will depend on the performance of the wider economy, which will in turn be determined by how the pandemic and restrictions on activity evolve.
The property market was never going to get through such a profound economic shock without taking a material hit. The hope is that the buoyant economic support package put in place by the Government will help the market to resurface quickly. The second half of 2020 is going to be the real test for the property market, as Government support for workers is slowly removed.
What will happen to house prices this year?
So far this is a hard reset for the market rather than a collapse. The gains of the ‘Boris bounce’ seen at the start of the year have been swept away, and the market is transitioning to the ‘new normal’. With estate agents across the UK at last able to conduct viewings, both buyers and sellers are feeling their way on price. While the full financial impact of the pandemic has yet to feed through into the wider economy, in the property market the mood among buyers is best summed up by the two Cs – caution and curiosity.
However, three months of being cooped up in the same four walls have led many people to consider a move, and to reflect on what they want from their home. With many companies now also seeing that working from home can work, the potential for suburban and rural areas to see an increase in interest is also there.
Quarterly figures show London prices rising 2.1 per cent in the second quarter of the year, although this reflects deals agreed before or early in the lockdown.
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