As the house building industry holds its collective breath waiting to see the impact of the stamp duty holiday being phased out, Savill’s increased their forecast for 2021 whilst admitting it’s a tricky business predicting property prices over the next year or so.
That comment may win an understatement of the year award. Their own reworking of forecasts is evidence of that difficulty as Savills are on forecast 3.0 for 2021 – initially predicting 0% price growth, then uplifting it to 4% in March and now more than doubling it to 9% for the calendar year!
Supply of second-hand property to the market remains muted and supply chain issues and covid restrictions have throttled back housebuilder production to the homes market – all serving to put upward pressure on prices.
On the demand side, many buyers have accrued savings during the pandemic and are using that money to move up the property ladder. Motivated by more outdoor or working from home space larger properties are seeing a higher percentage increases in price.
But what are the threats to the current levels of demand? Typically low cost and good availability of mortgages and high levels of employment have underpinned house prices.
As it stands, interest rates are incredibly low in historic terms, although with rising inflation there is an expectation that the Bank of England may increase the base rate to stem the increase in general prices. Any increase will push up the cost of mortgage finance and potentially soften demand, however, changes are likely to be small and gradual to avoid undermining the wider economic recovery.
And with the economic recovery in mind, we appear to be enjoying a V-shaped sharp recovery with unemployment less than a quarter of a percentage point higher than before the pandemic. Whilst there is speculation that the end of furlough may precipitate some additional unemployment this feels unlikely given the huge rise in vacancies in many sectors likely to absorb job seekers.
In summary Savills concluded “we see nothing on the horizon that would trigger a major house price correction”. I see no reason to disagree.