Savills has published revisions to its mainstream residential market forecasts due to the impact of the pandemic. The firm states: “We published our first note on coronavirus and the housing market in March, assuming a short-lived but significant economic downturn, where unemployment spiked but fell back relatively rapidly with a limited long term impact on the economy.
“Given low levels of price growth in the run-up to the crisis, very low costs of debt, significant short-term government support for jobs and lender forbearance, we expected falls in the average value of the UK home to be contained to 5–10%. However, we did not have enough information to be confident in being more specific than that. At the time it was unclear how long and to what extent social distancing would restrict activity in the housing market. But it was clear that there would be a significant impact on transaction levels in the short term. A lot has happened since then.”
More than two months of lockdown
According to Savills, it is now evident that the short-term economic impact will be much greater than originally anticipated. The ONS has estimated that the economy contracted by 5.8% in March alone. Most forecasters have therefore downgraded their forecasts for the second quarter; substantially so in some cases.
Forecasters have also become more cautious over the ability of the economy to bounce back quickly. Expectations of a later, more gradual recovery are more widespread. Downside scenarios show much higher levels of unemployment that take longer to return to previous levels.
Government has now allowed the housing market in England to be reopened, with Scotland and Wales opening shortly after. This has eased the practical constraints on moving, meaning transactions will reflect people’s appetite to move, rather than their ability to do so.