UK Housing

UK Housing Market Outlook

UK Housing Market Outlook

Higher interest rates to dab on the brakes

We think it will take longer than most others expect for rising interest rates to bring down the curtain on the COVID-19 house price boom. A large stock of household savings, the ongoing adjustment to home working and very limited stock on the market will conspire to drive house prices up by a further 5% in 2022, much more than the consensus expectation of a 2% gain. But rising interest rates will cool house price growth and transactions come the second half of 2022 and in 2023. However, with the labour market in good shape, Bank Rate would have to rise to over 2% for the housing market to get into correction territory, which neither we nor investors anticipate.

8 November 2021

UK Housing Market Outlook

House price growth to cool but not collapse

There are already signs that the end of the stamp duty holiday will take some heat out of the housing market, with house price inflation set to cool from 10% to 7% by the end of the year. But as we think that the tax break was just one of several factors behind the current boom, we expect house price inflation to cool rather than collapse. Remarkably limited damage to the labour market from the recession, and low and declining mortgage rates mean that house prices are likely to rise by about 3% y/y in both 2022 and 2023, stronger than expected by the consensus.

2 August 2021

UK Housing Market Outlook

Fundamentals support further house price gains

House price growth is on track to reach double figures in the summer before cooling as the stamp duty holiday ends. But with mortgage rates very low, the economy recovering rapidly and households still sitting on a large stock of savings built up during the pandemic, buyer demand should be resilient. As a result, we think that house price growth will cool rather than collapse from 6% y/y in Q4 2021 to 3% in 2022 and 2023.

14 May 2021
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UK Housing Market Outlook

Near-term pain, medium-term gain

Rising unemployment and the withdrawal of the raft of policies that supported the housing market in 2020 means that the pandemic will finally take its toll this year. The end of the stamp duty holiday will cause transactions to slump at the same time as rising unemployment feeds through to a modest rise in forced sales. We think that the result will be a 4% drop in house prices this year, reversing much of the 6.5% increase recorded in 2020. The medium-term outlook is more promising. Vaccination will allow the economy to recover quickly and we expect Bank Rate to remain at 0.10% for the foreseeable future, allowing mortgage rates to decline a bit further. If we are right, house price growth is likely to outpace pay growth from 2022. Global State of Play, 28th January, 0800 GMT and 1600 GMT. In the first of our regular briefings of the year, Group Chief Economist Neil Shearing will lead a discussion about the economic impact of vaccination programmes, another US fiscal stimulus package and fresh lockdowns in China.

27 January 2021

UK Housing Market Outlook

Housing market surge to be short-lived

The post-lockdown recovery in house price growth and housing market activity has exceeded expectations. But the economy will act as a drag on the housing market in the coming months, while pent-up demand will soon be expended and the stamp duty cut will end early next year. As a result, we expect the nascent housing mini-boom to soon end – stalling house price growth, pushing activity back below its pre-virus level and limiting the recovery in housing construction. Meanwhile, we expect rents to see a modest fall next year, as virus restrictions hit renters harder than owner occupiers.

27 October 2020

UK Housing Market Outlook

Housing market tail risks recede

Lockdown slammed the brakes on activity and house price growth, but policy interventions have cushioned the blow for housing. As a result, our initial fears of a house price collapse have waned. That said, we still expect house prices to fall 3.5% in 2020, before reversing that dip in 2021. Meanwhile, as the economy restarts, housing transactions and construction will see a quick initial recovery. But the lasting impact of the coronavirus on the economy means that both will struggle to reach their pre-virus levels by the end of our forecast horizon.

23 July 2020

UK Housing Market Outlook

Housing market faces serious downsides

The housing market will take a deep hit from the coronavirus. We expect housing transactions and housebuilding to drop by 70% in Q2 this year, as physical distancing measures halt activity. Meanwhile, house prices will see the biggest fall since the global financial crisis. Admittedly, our base case is for activity and prices to recover fairly quickly. But a credit crunch or larger economic hit could trigger an even deeper downturn.

28 April 2020

UK Housing Market Outlook

Weak fundamentals keep lid on housing activity

While the decisive election result could lead to a modest increase in housing demand over the next couple of years, we doubt that this will translate into a substantive pick-up in transactions or house prices. Indeed, any improvement in sentiment will peter out towards the end of the year as the trade deal with the European Union goes down to the wire. And in any case, the housing fundamentals – high house prices and rock-bottom interest rates – aren’t conducive to any meaningful pick-up. As a result, we expect housing market activity to remain muted. That said, with tenant demand rising and supply limited, we expect rental growth to pick up over the next two years.

23 January 2020
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