2020 may well have been the strangest year for the housing market since the Halifax house price index began in 1983. Despite the biggest drop in GDP since 1709, house prices rose by 7% y/y in Q4, the largest rise since 2015. But we think that most of the increase in house prices in 2020 will be reversed in 2021 after policy support is withdrawn.
The year the housing market ignored the economy
- 2020 may well have been the strangest year for the housing market since the Halifax house price index began in 1983. Despite the biggest drop in GDP since 1709, house prices rose by 7% y/y in Q4, the largest rise since 2015. But we think that most of the increase in house prices in 2020 will be reversed in 2021 after policy support is withdrawn.
- Annual house price growth eased back from 7.6% in November to 6.0% in December, but that was due to base effects. House prices rose by 0.2% m/m in December, but that was a much smaller increase than the 1.6% m/m gain in December 2019. (See Table 1.) As the Nationwide house price index rose by 0.8% m/m in December 2020, raising the annual growth in that index from 6.5% to 7.3%, the smaller monthly rise in the Halifax index cannot be taken as evidence that the house price surge is over.
- While annual Halifax house price growth eased in December it averaged 7% in Q4 (the most widely cited underlying measure), the highest since 2015. That was a bit higher than the 6.2% increase in asking prices reported by Rightmove which chimes with anecdotal evidence that strong competition between buyers has led to the discounts on asking prices diminishing.
- It is unusual for house prices to do well when the economy does not. (See Chart 1.) Of course, the divergence in the last year is due to unprecedented government support including the furlough scheme, mortgage payment holidays, a ban on repossessions, and the stamp duty holiday. Together, those schemes have more than mitigated the economic impact of the pandemic on the housing market.
- But all that support is due to be withdrawn in Q2 2021, which is why we think that house prices will reverse most of their 2020 surge this year. While the consensus forecast is a 2% drop in house prices, we expect a 5% slide. (See here.)
Chart 1: GDP & Halifax House Price Index
Sources: Refinitiv, Capital Economics, Halifax
Table 1: Halifax House Price Index
House prices (£000s)
Andrew Wishart, Property Economist, +44 (0)7427 682411, firstname.lastname@example.org