Residential Market Outlook Week Beginning 22 June 2020

As the UK economy re-opens, mixed signals mean the pessimists and the optimists can both feel vindicated.

On Friday, share prices rose in early trading after a record 12% rebound in retail sales in May.

However, on the same day, the country’s debt to GDP ratio rose above 100% for the first time in more than 50 years due to the government’s unprecedented financial response to the pandemic.

The latter was in some way responsible for the former.

Meanwhile, in the property market, the lid hasn’t been lifted on the pent-up demand that has built in recent years, it has been kicked off. For now, at least.

The number of new prospective buyers registering across the UK was 45% above the five-year average in the second week of June, continuing the upwards trend of recent weeks. Furthermore, the number of offers accepted outside of London reached its highest ever level in the first week of June, only to be superseded the following week.

Gazumping and sealed bids are happening and more than one agent has said this is the busiest market they have known. The High Street is clearly not the only place where people are currently spending their money and the lockdown provided many with the opportunity to re-evaluate how and where they live.

Things may not continue at this pace for long. Another agent described the activity of recent weeks as “the storm before the calm”, reminding us that this current burst of activity cannot last for ever.

While this is true, more sellers are starting to re-enter the market. The number of new instructions to sell in the first fortnight of June outside the capital was 16% higher than the five-year average. Ed Rook, the head of Knight Frank’s Country business, said the market was becoming more sustainable.

How sustainable in the longer-term comes back to the question of how the UK economy performs during the rest of the year.

In this respect, the Bank of England is also hedging its bets. Chief economist Andy Haldane voted against the £100 billion in extra quantitative easing agreed by the Bank last week, pointing to the fact the recovery was “occurring sooner and materially faster than anyone expected”.

The Bank predicts the labour market will “take some time to recover towards its previous path” and warned of the risk of "higher and more persistent unemployment". On the other hand, it has also said that recent evidence suggests the economic contraction in Q2 would be less severe than its scenario of a 25% decline.

These mixed signals neatly reflect the difficulty that buyers and sellers will face navigating historic and real-time data this year, as discussed last week.

Knight Frank forecasts a 5% decline in prime London markets in 2020 and 7% across the UK as a whole, with the drop largely already having taken place. That is subject to change as fresh economic data comes in.

However, one thing likely to remain true throughout this year is that higher-value property markets will be more insulated from the flow of economic news, a theme we will explore more in coming weeks.

A higher proportion of buyers benefiting from the weak pound, the safe haven credentials of prime UK property and the more liquid position of buyers means higher-value markets have been quicker to respond to events in recent decades.

This time round, it will also help that prices have been falling or subdued in recent years. Prime central London prices grew by 74% in the five years before the last recession in 2008. In the five years before the recent lockdown, there was a 12% decline. It was the same trend across the UK, but less accentuated. Growth of 70% before the last recession dwarfs the 20% growth over the last five years.

As we attempt to divine the future trajectory for the property market, the past is as good a place to start as any.