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The Corona Effect

18.03.20

Market data currently available (though essentially backward looking) shows a strong burst of renewed buyer confidence in the first two months of the year, but it’s clear that coronavirus presents a much more immediate threat to the Boris Bounce than Brexit, reports Savills.

The effect of COVID-19 on the housing market is likely to come from three areas - the impact it has on sentiment, as all but the most committed buyers become more cautious in the short term, at least until global stock markets stabilise. Secondly, the practical impact it has on buyers’ and sellers’ ability to transact, as it limits people’s ability to go about their normal business and lastly, its impact on the economy and the traditional drivers of affordability.

On the final point, few forecasters have been prepared to put their neck on the line though Capital Economics has suggested that a short sharp recession is currently the worst-case scenario.

The emergency cut in the bank base rate, economic stimulus from government spending pledges and the willingness of mortgage lenders to take a considerate view of short-term mortgage arrears, are designed to mitigate the impact.  Meanwhile, the perceived security of a bricks-and-mortar investment in times of uncertainty should to help underpin values.

All of this points to a hiatus in the housing market, without necessarily affecting longer term prospects. So at this stage we are standing by our five-year forecasts, even if the pattern of price movements from year to year is less certain.

The fundamentals that underpin our medium-term view remain; if anything mortgage debt is likely to remain cheaper for longer, while prime property in central London remains relatively good value in a global and historical context, particularly for dollar buyers. These factors point to the continuation of demand when we see signs of the COVID-19 effect dissipating.

That means sellers will undoubtedly need to remain pragmatic on pricing over the course of 2020, as demand becomes more dependent on needs-based and opportunistic buyers.

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