Despite signs that the real estate market has fared reasonably well during the pandemic, experts have indicated that prices will not return to pre-pandemic levels until ‘at least’ 2023.
When the coronavirus pandemic first hit in the early part of the year, the subsequent lockdowns left many in the real estate industry fearful over how this would impact property sales. With people restricted to their homes and in-person viewings banned, it was thought that the market would inevitably suffer as prospective homeowners made the decision to delay their purchase until things had settled back down.
Whilst there was an initial downturn in sales during the months following the March 2020 lockdown, other signs indicated that the market was very much alive and kicking. Property searches soared during lockdown and particularly for listings which included more spacious gardens or room for a home office; now the prerequisites of any desirable home in the midst of a global health pandemic.
When restrictions were lifted, there appeared to be a ‘boom’ in property sales as buyers looked to switch their city dwellings for out of town locations. Indeed, the shift from office to home working has led many to completely rethink their property requirements and desired location in addition to wanting to be closer to family members should another lockdown ensue. Further incentives such as the reduction in stamp duty in the U.K. have encouraged those who may have been sitting on the fence to push forward with a house sale and of course, the very wealthy, who have been largely unaffected by the pandemic, have been able to continue investing in high ticket luxury properties.
Focusing on flourishing sales however only tells one side of the story; further investigation reveals that house prices have in fact fallen this year and will continue to fall during 2021. In an article featured in This is Money, The Centre for Economics and Business Research has revealed some stark predictions regarding house prices. They report that house prices have fallen by some 5% this year and will fall by a further 10.6% in 2021. They also believe that house prices won’t recover to pre-pandemic levels until 2023 at the earliest.
As the pandemic continues to impact economies across the world, real estate analysts have highlighted that the ‘full force’ of COVID-19 has yet to permeate the property market. Until now, many workers have been protected by government interventions, such as mortgage payment holidays, furlough schemes and grants to top up income during periods of lockdown or restrictions. Despite the recent news that vaccine trials were providing extremely promising results, it is expected that harsher restrictions on movements will be needed in the new year to help keep the virus in check whilst we wait for the vaccines to be widely available and for the warmer spring months to arrive. It is believed that once the financial props are removed, a much clearer picture will emerge with regards to affordability, cash flow and income.
As part of a Reuters poll earlier in the year of over 21 strategists in the sector, Commerzbank economist Peter Dixon was quoted as saying: “I would expect the housing market to be a casualty of the economic scarring that will result from this recession. With prices already looking elevated and incomes set to be squeezed, market clearing prices can be expected to fall significantly.”
It’s also worth bearing in mind that first-time buyers are not the only segment of the market to have influence. In an interview for Forbes, Mark Fleming, chief economist at First American Financial Corporation, a provider of title insurance and settlement services was quoted as saying: “The challenge is that sellers are also buyers. About two-thirds of all home buyers are existing homeowners. What will it take for more existing homeowner buyers to come back to the market? Ironically, more supply! Housing is not like most goods. It has to be “better” than the one the potential buyer currently owns now, and when the supply dwindles, it becomes harder to find a better house and easier to just refinance and do a renovation instead.”
In an article for Yahoo! Finance, Head of Research at Hamptons International, Aneisha Beveridge was quoted as saying: “The economic consequences from the COVID-19- induced recession will pull the housing market from its long-term growth trajectory. While some economic recovery should have taken place to cushion the withdrawal of government support, we still expect the housing market to slow next year. In line with a gradual economic recovery, we forecast house prices to rise again in 2022 and 2023. The housing market will fall back in line with its historical cycle, with northern regions expected to see the greatest price growth, further closing the gap with those in the south.”