Historically, economic uncertainty and market volatility are detrimental to the housing market, and the latest observations on the impacts of coronavirus suggest that housing transactions are set to drop by as much as 60% over the next three months.
Before the outbreak of Covid-19, the UK housing market got off to its strongest start for four years, with average annual house price growth hitting 1.6% across UK Cities in February, according to Zoopla.
But activity in the market has been hit hard in the wake of Covid-19’s impact from early March onwards.
The social distancing strategy has created an immediate impediment to property viewings and valuations, which are integral to the process of buying and selling a home.
Purchases already agreed and moving towards exchange of contract are continuing, but a rapidly growing proportion of sales are starting to fall-through, as buyers reassess the necessity of a large financial decision. Fall throughs last week were 60% higher than the previous week, but new sales agreed currently remain higher than fall-throughs by four to one.
A fall in demand is expected to culminate in a reduction in sales agreed towards the end of the quarter and into the summer months, given the time lag between marketing a home to agreeing a sale and completing a transaction - a process that can take four to six months end to end.
Zoopla Research modelling indicates a fall in transaction volumes of up to 60% over the second quarter of 2020, but some individual spring months may see newly agreed sales down by up to 80% on last year given the shutdown of normal life and knock-on impact for the market.
While it is too early to forecast the impact of Covid-19 on the UK economy, house prices are not expected to change materially in the next month or two, particularly as a proportion of sales agreed in the last two months will continue to completion, according to Zoopla.
Richard Donnell, director of research and insight at Zoopla, said: “Covid-19 presents a major new challenge - not just for the housing market but for the UK and global economies. Fifty years of history shows that external shocks have impacted the housing market to differing degrees, largely down to the scale of direct impact on the UK economy.
“The initial impact of external shocks is to reduce consumer confidence and put a brake on housing demand and the number of people moving home, which we can see in our latest figures. Levels of property transactions are typically more volatile than changes in house prices.
“We do not expect any immediate impact on prices. Beyond this, the outlook for house prices largely depends upon how the Government’s major package of support for business and households reduces the scale of the economic impact. Low mortgage rates mean forbearance will remain the preferred choice for lenders, but further Government support in these unique times cannot be ruled out.
“The timing of any rebound in housing market activity depends upon when new restrictions are lifted, and the extent to which households and businesses are able to return to a normal way of life. Browsing for homes online is set to continue and, while demand for property may rebound quickly, it will take several months for agents to rebuild new business pipelines.”