Despite GDP being set for its biggest fall in 300 years this year, annual house price growth accelerated to its highest rate since January 2015 in November. The divergence has only been possible due to extraordinary policy support that has protected and boosted house prices. When that is withdrawn in 2021, we expect the pandemic to take its toll.
Surge in house prices to reverse in 2021
- Despite GDP being set for its biggest fall in 300 years this year, annual house price growth accelerated to its highest rate since January 2015 in November. The divergence has only been possible due to extraordinary policy support that has protected and boosted house prices. When that is withdrawn in 2021, we expect the pandemic to take its toll.
- There is still little sign of the 2020 house price surge petering out. The 0.9% m/m increase in house prices in November was marginally stronger than the 0.8% m/m increase in October. The rise in prices since June has more than made up for the dip in house prices during the first lockdown, lifting annual house price growth up from -0.1% in June to +6.5% in November, the highest rate since January 2015.
- Momentum in house prices is even stronger than the annual rate suggests. On a three-month-on-three-month basis house price growth increased to 3.7%, which is the fastest since October 2009, two months before the last, less generous, stamp duty holiday ended.
- We expect the surge in prices this year to be reversed in 2021. If mortgage approvals remain at their current high level they will be higher in 2020 than 2019, suggesting that pent-up demand from the first lockdown will soon be expended. And coinciding with the end of the furlough scheme, the stamp duty holiday will finish as we expect the unemployment rate to be nearing a peak of 7%. So like at the end of the last stamp duty holiday in 2009, a change in house price momentum is likely. (See Chart 1.)
- That said, we aren’t expecting a house price crash. (See here.) With a vaccine likely to be rolled out in the first half of 2021 we think that he economy and employment will recover quickly (see here) preventing a prolonged fall in prices. In fact, the 5% drop in house prices we expect next year would leave house prices marginally higher at the end of 2021 than they started 2020.
Chart 1: Nationwide House Prices Around the End of Stamp Duty Holidays (% 3m/3m)
Nationwide House Prices – Key figures
House prices (£000s)
Andrew Wishart, Property Economist, +44 (0)7427 682 411, firstname.lastname@example.org