Impact of Covid on the Housing Market – Show House

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The direction of the UK property market this year is only becoming clearer as it shakes off a stronger than expected Covid hangover. It would be nice to say that the UK property market has returned to normal since Covid restrictions were lifted. Frustratingly not.

“Longer low” is a term used to describe that interest rates have stayed near zero longer than expected. For Covid-19, the equivalent expression would be “stay longer”.

Supply is a good barometer of how much influence Covid continues to exert, but there has been only a modest increase in the first six weeks of this year. Would you currently advertise your property without an urgent need?

Some would and would have decided unequivocally that early 2022 is the time to act. The number of UK market appraisals in January was 7% above the five-year average.

But it’s a mixed picture. Excluding January 2021, a month in which the UK was in lockdown, there was an 18% drop in reviews. On a positive note, the number of sell instructions in January was just 4% below the five-year pre-Covid average.

mixed signals

While supply is restlessly improving, demand is consistently strong. The number of new prospective buyers in the UK in January was 54% above the five-year average.

The laws of supply and demand suggest that 2022 will be another strong year for transactions and prices.

But that is not the same as a fully functioning, sustainable or balanced housing market. Achieving this goal will take longer, and there will be more examples of potential sellers who can’t be listed due to a lack of their own purchase options – just hopefully not for many more months.

depress living costs

The story of ‘staying longer’ also applies to the UK economy. The Bank of England has successively revised upwards its inflation forecasts and warned that the fall in the cost of living will be felt into 2023. Supply chain disruptions also played a central role in this story.

While this will fuel the call for rate hikes, there should not be any significant impact on the housing market in the near term. Despite the low cost of living, interest rates remain low by historical standards. The growing popularity of fixed-rate mortgages will also mitigate the immediate financial impact.

Arrivals from overseas

For prime property markets in London and the South East there are even more moving parts to consider.

The number of overseas passengers arriving in the UK this year will affect these markets but is far from easy to predict.

There was a first wave of buyers arriving in London in the final months of last year following the easing of travel rules, which particularly benefited prime new build developments.

However, foreign demand is still somewhat unpredictable for the reasons examined here. Essentially, different parts of the world are clearing Covid at different rates.

spring tide

However, demand will pick up in spring as international buyers tend to follow more seasonal buying patterns. An increase in demand could push up prices if not matched by an increase in supply. After six subdued years, prices in PCL are already in gentle recovery mode.

Not all buyers appreciate this underlying trend, according to Stuart Bailey, Knight Frank’s head of prime sales in London.

“A growing number of vendors are recognizing that this is a seller’s market,” Stuart said. “The lack of stock means it’s a good time to list. The return of international buyers will exacerbate the imbalance between supply and demand, but buyers and sellers need to realize that prices in PCL have turned a corner anyway.”

With self-isolation rules reportedly being relaxed this month, there’s still a lot to weigh up if Covid disappears in the rear-view mirror.

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