Sales still being agreed over last week

While interest from new buyers has fallen dramatically, housing market activity has not ground to a total standstill. We are still recording new sales agreed ‘subject to contract’ on property listings. These are down 15% over the last week and have fallen back to levels that are 4% lower than a year ago.

Fall throughs rising fast off a low base

In normal times it takes 2-3 months for sales that are ‘sold subject to contract’ to reach completion. We expect a reasonable proportion of recent purchases agreed in the last six to eight weeks to complete. However, there has been a rapid increase in the number of sales being marked as fallen through as uncertainty over COVID-19 leads to buyers to pulling out of sales. Fall throughs last week were 60% higher than the previous week but new sales agreed currently remain higher than fall-through’s by a ratio of 4 to 1.

No mass withdrawal of homes from the market

On the supply side there is no evidence of major withdrawal of homes from the market. Indeed, new stock has continued to be listed, albeit at a slowing rate. For those with homes for sale there is no immediate rush to make rapid decisions and agents will be engaging their clients about the market outlook and how best to respond. The partial lockdown means the ability to market homes is now largely curtailed. Some agents will offer virtual viewings and a change in marketing, but many vendors will want to pause or withdraw their homes for a period.

External shocks hit sales more than prices initially

Fifty years of history shows that external shocks and global events tend to impact levels of housing market activity more than prices in the short term. The impact on agreed sales prices tends to be more closely linked to direct shocks to the UK economy. It is too early to tell the scale of the direct economic impact of COVID- 19, especially considering the unprecedented Government response to support the economy.

What is clear is that housing transactions will decline very rapidly over the second quarter of 2020 and, given the time lag from a property being first marketed to becoming a transacted sale sold this will further reduce housing sales into 2020 Q3.

Sales volumes to fall by 60% in Q2 and into Q3 2020

Our modelling points to completed housing transaction volumes in 2020 Q2 being 60% lower than the same period last year. We expect low transaction volumes to continue into the third quarter. Individual months over the spring may see newly agreed sales down by as much as 80% on last year.

Building a pipeline of new business will take time

The timing of any rebound in housing market activity depends upon when new restrictions are lifted and the extent to which households and businesses can start returning towards a normal way of life. In the worst affected parts of China, the lockdown has lasted up to 2 months with restrictions now being lifted. While demand in property may rebound quickly it will take several months for agents to build a pipeline of sales dependent on their ability to transition to virtual activity during the period of lockdown.

House prices unchanged in short term

We do not expect any sudden changes in house prices in the short term. A proportion of sales agreed over the last two months will continue to completion and the rate of city level house price growth is unlikely to change in the next one to two months.

Most of today’s sellers do not need to sell, and they can withdraw their homes off the market until the outlook becomes clearer. Double digit house price falls tend to occur in times of economic stress where there is a jump in the number of forced sellers – typically a result of rising unemployment, a lack of credit or higher borrowing costs.