Worst month since the crisis? These house price falls are only the beginning

Linda J. Dodson

The first real sign of how the lockdown damaged the property market is here: the lender Nationwide said house prices fell by 1.7pc between April and May, the biggest monthly decline since February 2009.

These figures don’t really reflect the market or the economic forces at work – just the impact of the housing market freeze. In fact, they’re only a taste of what’s to come.

To understand the reality of the situation, we must wait until the autumn for crunch time – when furlough ends, unemployment rises and consumer sentiment collapses. Property owners will no longer be supported by mortgage holidays, forcing some to sell up, particularly buy-to-let landlords. It’s at this point we will see the real falls that are caused by the economic fallout.

Until then, as we float in stasis and the Government props up the economy, we will only see what people think will happen then, guessing how far prices will fall and trying their luck in negotiating discounts.

That means that these figures need to be taken with a degree of scepticism: Nationwide’s index reflects how house prices changed in May – but for half of that month, the property market was suspended, with restrictions only lifted on 13 May. Before that, the market ground to a complete halt for seven weeks as the Government urged buyers and sellers to delay their deals, and viewings were banned as we ventured outside just once a day for exercise and essentials. 

As a result, there were just 46,440 residential sales in April 2020, according to HMRC. That is roughly half the number completed in March and 53pc less than in April 2019, and the vast majority of these will have been deals that were taking place before lockdown. We could see a similarly low number of sales in May.

The Office for National Statistics and property portal Rightmove have both suspended their indices because they say there aren’t enough transactions to be able to accurately reflect what is going on in the market. Nationwide bases its numbers on mortgage offers, which during lockdown will have been very low indeed.

Even now, after restrictions have been lifted, the market is only half alive. While sanguine estate agents boast of huge demand for properties, it’s not clear that those will translate into actual sales. This is more representative of people being locked in their homes for weeks and wanting to see where else they could imagine living. Will they actually bite the bullet and buy when Britain is facing the worst recession in more than 300 years? Only the brave.

A consumer survey from rival property portal Zoopla found that 41pc of homemovers will now postpone their plans, with buyers and sellers spooked by the threat of recession and very gloomy house price forecasts, such as the Bank of England’s expectation that home values will fall by 16pc.

Depending on the shape of the recession, these falls may last for some time. During the global financial crisis, house prices took 16 months to fall 18.4pc.

And even those who plan to go ahead may be constrained by their chains, as a significant share of the 373,000 suspended sales will not be able to pick up where they left off. At the moment over a quarter of over-18s are shut out of the market because they are furloughed or have lost their jobs, and so are unlikely to be able to get a mortgage.

Making too much of these Nationwide numbers could have a dangerous effect on the market, too. With such a low level of transactions, the sample size is so small that house price indices could become volatile and inaccurate.

Hansen Lu of analysis firm Capital Economics has argued that the property market needs accuracy in these indices in order to properly function, as buyers and sellers use price data to make decisions about bids and asking prices. “If providers publish inaccurate data, that could alter behaviour,” he said. 

All this puts the market in a perverse position. Until more people start buying again, we can’t see the full picture. 

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