The housing market has surprised us all in the last few months. Even the most bullish commentators couldn’t have predicted how resilient UK housing has proved. At the time of writing, the market is performing at close to 75% of 2019 norms.
Not bad, especially when you consider the once-in-a-generation disruptions the last few months have served up.
Yet, for all the positivity it’s hard not to worry that we haven’t seen the last of COVID-19. We may try to push it to the back of our minds. We may do our best to live for today. The frenetic activity in conveyancing departments across the nation certainly speaks to that.
However, most epidemiologists concede that a second wave is entirely possible, or even likely. If the worst should happen, how well-insulated is the housing market against a second period of disruption?
The Worst-case Scenario
Let’s start with the worst possible outcome. It might be tempting to assume that the housing market will simply stall for a while, then resume normal activity once the peak of the second wave has passed. After all, that’s exactly what happened back in June.
But there’s a key difference between the late-August and early-June. The state of the UK economy.
Of course, commentators have been concerned about the UK economy for much of the last decade. What’s different this time around is that a double-dip recession is no longer a spectre haunting economists’ dreams. It’s here.
According to the Office for Budget Responsibility (OBR), the UK could be facing the worst recession since records began. To put that in context, we could see 12% unemployment and a 35% contraction in GDP by the end of 2020.
You don’t have to be an economist to conclude this is bad for the housing market. Very bad. Mass unemployment means fewer people able to buy houses. And, even those that can afford it may well opt to sit out the storm and delay their purchase.
Nor is a recession likely to have a positive impact on house prices. Without a high-demand for property (outside the rental sector, at least), there’s little to drive values up. Admittedly, they’re unlikely to fall dramatically either as new build projects stall, but that’s no real solace to developers, conveyancers and estate agents.
In this context, a second wave could be disastrous. The combination of a flatlining economy and a return to lockdown could send the UK housing market into a deep freeze for months or even years.
A More Hopeful Picture
Despite all that doom and gloom, there are a few reasons why the housing market might yet prove resilient.
The first is the likely nature of any second wave. Although many of us are still susceptible to the virus and a vaccine is still some way off, that doesn’t mean it has to be as bad as the first time around. According to many scientists, provided the government eases its way out of the current lockdown measures (you be the judge of whether that’s happening), a nationwide shutdown doesn’t have to be inevitable.
Instead, we could well see a series of local lockdowns through the winter. As for how that would look, you need only look at Leicester, parts of the North West, and Aberdeen. This means that while local lockdowns would be terrible for conveyancers in the towns and cities affected, the impact on the market as a whole would probably be negligible.
The second factor worth considering is history. The UK housing market has proved itself remarkably durable in the recent past. Most notably in the months following the last wave, but also in the wake of the 2008 financial crisis. Its entirely possible that we could see a short period of stasis, followed by a return to something like normality very quickly.
Finally, there’s the wider question of how tied the UK housing market is to consumer spending anymore. Of course, it makes perfect sense that low-spending power among UK consumers equals poor demand and falling house prices. But, although this is partly true, it ignores the role of overseas capital in the market.
One of the key reasons house prices and activity remained relatively stable during the austerity decade (2008-2018) was foreign investment. Whether the same is true in the years ahead will largely depend on the outcome of Brexit and how hard the recession bites globally. However, it at least provides another cause for optimism for UK conveyancers.
The truth is the next few years are a leap into the unknown for UK housing. On the one, hand there are few positive economic forecasts to be found at the moment. On the other, the market has proved resilient in equally dire circumstances in the past. So, perhaps the best advice we can give to conveyancers is to enjoy our current period of sunshine, however long it lasts.