"The latest forecasts for increased unemployment and a sharp economic contraction over the next 12-18 months certainly seem at odds with current levels of sales market activity."
However, while these measures are now rising ahead of their pre-Covid levels, the increase in sales and supply since the start of the year is lagging 20% behind the same period in 2019.
In contrast, demand for housing has rebounded strongly as pent-up demand returns to the market. In the last month demand from buyers has been double that of the same period in 2019. On a cumulative basis, since January 2020, demand is running 25% higher than the same period in 2019 despite the lockdown and market closure.
Zoopla says this is primarily ‘catch-up’ demand for what was lost over lockdown, and it’s estimated that returning buyers account for 80% of levels that would have been expected over this period in 2020 had Covid-19 not struck.
The Index shows that a widening gap between supply and demand is expected to support house prices over the second half of 2020, with year-on-year declines in capital values unlikely before the year end.
Regional cities across the north of England have recorded stronger growth in demand in the first half of 2020 compared to 2019, while new supply has been hit country-wide as a result of the market closure. The greatest short-term support for prices will be in cities where demand has grown the most over the first seven months of 2020 compared to 2019 - top of the list for demand are Sheffield, Liverpool, Manchester and Nottingham.
Despite an overall decline in annual transactions, London enjoyed an immediate boost to sales agreed following the stamp duty holiday recently announced in the Summer Statement.
New sales agreed have increased by over a quarter (27%) in just two weeks in London, which was geared to benefit most from the changes.
Zoopla says this boost to transaction volumes has not been replicated in other regions, where average property prices are lower and less responsive to stamp duty amends. While stamp duty relief will support demand in higher value markets, Zoopla believes it is unlikely to sustain demand indefinitely into 2021.
At present, UK house price inflation in the 12 months to June 2020 have edged up to +2.7%, registering the highest level of annual growth for almost two years. By contrast, the monthly rate of growth has halved to 0.2% and the city level price indices are registering slower growth still as a result of lockdown and reduced pricing evidence.
While there is a wide variation in annual growth rates across the country, there is no evidence of material, localised annual price falls at a regional or city level.
Based on current trends, the headline annual rate of growth is set to remain positive, as the growing imbalance of supply and demand is set to support prices for the remainder of the year.
Richard Donnell, research and insight director at Zoopla, commented: “Covid and the lockdown have shifted the dynamics of supply and demand across the housing market. The staggered reopening of housing markets across countries and the added impetus from the stamp duty holiday mean we expect buyer demand and new sales volumes to hold at current levels over the next two months. The net result will be continued support for house price growth at current levels over the second half of the year. Regional cities in northern England and the Midlands have the strongest underlying trends.
“For those operating in the market, and others looking in, the latest forecasts for increased unemployment and a sharp economic contraction over the next 12-18 months certainly seem at odds with current levels of sales market activity.
“We expect rising unemployment to weigh on market activity over the final quarter of 2020 and into the first half of 2021. The impact on pricing looks set to be pushed into 2021 as a result of sizable Government support for the economy. Further support cannot be ruled out while forbearance by lenders, and the availability of the mortgage payment deferrals, which can start up until the end of October for 3-6 months, is likely to limit the scale of downside for house prices. Much depends on how businesses respond to the outlook and their decisions on staffing levels and the knock-on impact for unemployment.”
