Why the 2021 housing market could be a year of three parts
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There’s little doubt the performance of the UK property sector took many commentators by surprise in 2020.
For the first time in modern history, we saw the economy and the housing market go in different directions during a recession, as people’s reassessment of their housing needs held sway.
The new homes market here in Suffolk was no exception and we experienced incredibly strong demand for several of our schemes – which is still very much in evidence at the start of 2021. Despite an uncertain economic backdrop those with the financial security to do so continue to re-evaluate what they want from their homes, with more space and access to the countryside and coast top of the list.
The picture has also been positive for the UK as a whole. Nationwide has reported annual housing price growth of 7.3 per cent, while November transaction figures were up 13 per cent on the same month in 2019 according to HMRC, and, more emphatically, mortgage approvals were up 58 per cent according to the Bank of England – a very encouraging indicator of activity carrying over into the months ahead.
Savills own prime market indicators showed more modest price movements. Although activity levels were extremely strong across many prime market sectors, this was supported by pragmatic pricing as buyers and sellers remained mindful of economic and political uncertainty.
So where does that leave us for 2021?
The striking of a trade deal with the EU has certainly reduced some of the risk to the housing market but, as set out in our recent cross sector report, our research team still expect a year of three parts dictated by the stamp duty holiday, the effect of the current lockdown on people’s desire to move on the one hand and their household finances on the other and, thirdly, the rollout of a vaccination programme.
Phase 1: The desire to beat the stamp duty holiday deadline will help sustain activity in the first quarter of 2021. Lockdown may make it harder to complete a purchase before 31 March and that is likely to put pressure on the Chancellor either to extend the holiday or provide some transitional relief, but there are no guarantees this will happen. We therefore expect a sense of urgency to complete sales early in the year, particularly in the middle part of the housing market where upsizers have the most to gain.
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Phase 2: The end of the stamp duty holiday will coincide with rising unemployment as the furlough scheme ends, which will slow activity and potentially lead to price volatility in the mainstream markets during the middle part of the year. While we expect the experience of the latest lockdown to increase people’s desire to move, the economic impact is expected to restrict their ability to do so in this period. The prime market, however, is expected to be more insulated against these drivers given it is less reliant on the stamp duty holiday and buyers typically have greater wealth to fall back on.
Phase 3: Thereafter, the economy is forecast to begin to recover, with unemployment expected to fall as the vaccine rollout gains traction and people begin to return to a more normal life-work pattern. That is likely to cause the housing market to pick up again in line with an improvement in consumer confidence. At this stage we expect net price growth to be at or close to zero across most market segments, however market activity and the pattern of price movements will vary.
How and precisely when one phase leads into the next is perhaps the biggest unknown this year. But at this time – as in any other – we are here to help in any way we can.
While you’re staying at home and keeping safe, do feel free to drop us a line. As ever, our advice will be informed by analysis from our highly regarded research team, local market knowledge, your individual circumstances and, of course, the latest government guidelines.
For advice about the new homes market in Suffolk contact Max Turner at Savills Ipswich on 01473 234826 or MTurner@savills.com