Property transactions could collapse by 80 per cent in a month due to coronavirus lockdown

Zoopla forecasts a 60 per cent contraction in house sales between April and June, but this is by no means the same as a house price crash

Premium

The coronavirus outbreak could cause house sales to plunge by as much as 80 per cent in the individual spring months compared to last year, according to a forecast by Zoopla.

Overall, the property portal predicts an average of up to 60 per cent fall in transactions across the three months to June.

The pandemic has hit the property sector hard. In the seven days to March 22, buyer demand dropped by 40 per cent compared to the previous week, according to Zoopla. However, sales were still agreed, although this was down 15 per cent on last week, and it was 4 per cent lower than the same week last year.

Buyer demand is calculated using a combination of web visits and the number of properties going under offer.

Over the same period, there was a 60 per cent spike in the number of sales falling through. This will only get worse, as it was before the government announced the national lockdown on Sunday evening. 

Now, house viewings, legal processes and contract signings have all but ground to a halt, leaving many buyers and sellers in limbo. There is no official guidance from the government, but Michael Gove, the Cabinet Office minister, said: "If it is possible to pause a house move, people should stay in their home."

As a result, there is some confusion over what is possible. Andrew Boast of SAM Conveyancing notes a client, who is a key worker, who has “just been told that they can’t complete on their purchase because the estate agent won’t agree to release the keys due to the virus”.

There is precedent for what happens to a property market in lockdown. “I think the effect on transactions will be massive,” says Neal Hudson of property firm Resi Analysts. “I wouldn’t be surprised if we saw short-term numbers like China’s.” There, in the first three weeks of February, sales volumes dropped by 90 per cent, according to analysis by Capital Economics of 30 major cities. 

“There are parallels to the crisis in 2007/2008,” adds Lucian Cook, research director at Savills. Although unlike in that period, this crash in transactions may not lead to similarly extreme house price falls.

“Levels of property transactions are typically more volatile than changes in house prices,” says Richard Donnell director of research at Zoopla. “We do not expect any immediate impact on prices.” 

The more long-term question is what will happen to the UK economy. The outlook for house prices will depend largely on how effective the government’s alleviation package works, says Donnell. If it is successful, when the lockdown lifts, “demand for property may rebound quickly,” he says, though there will be a delay as agents rebuild business pipelines.

There are three key factors that mean the outlook is significantly different to the housing market crashes of 2008 and the early Nineties, says Cook.

First, interest rates have long been very low, which means there isn’t the same pressure of affordability that preceded both previous crashes. 

Similarly, though the numbers for the beginning of the year were looking up, “prices had been falling gradually in relation to inflation,” says Cook. Normally, house price crashes follow a period of exponential growth. The UK market was not volatile before the outbreak struck. 

And finally, the government response to protect jobs and earnings has been swift, says Cook. “That means I think we won’t get a big glut of repossessions.” Fewer forced sellers who have to accept price cuts than during a typical recession.

However, there may well be “pockets of stress” where sellers do have to take cuts, says Hudson. Heavily mortgaged short-term letting landlords and developers with cash-flow problems will be at risk. Capital Economics has forecast a 3 per cent house price contraction over the course of this year.

After the outbreak is under control, there will likely be two groups in the property market, says Hudson. People who were able to continue salaried work during the lockdown, who “can buy as they could buy before”, and those who can’t. The existence of the first group will mean that “prices could stay stable”, says Hudson, but transactions will stay low.

But there could also be some other behavioural side effects, which could bring more market liquidity, says Cook. In essence, self-isolation could make homeowners see the cracks in their current living situations. 

People who had been putting off upsizing to a bigger house, older homeowners who had been thinking about downsizing to move closer to their families, and anyone thinking of moving into retirement housing with more support, could all be keen to move after a long period of lockdown.