As the COVID-19 crisis made its inexorable way across the globe, the world’s stock markets recently, over a period of 15 days, fell from all time highs in to a ‘bear’ market. The developed world’s central banks have been furiously printing money and reducing interest rates for years now, in a vainglorious attempt to perpetuate the longest ‘bull’ run in the financial market’s history, but a virus has put paid to all that… for the moment at least. As a matter of fact, In stock market history, a ‘bear’ market has never been caused by a disease.
To quote the highly respected investment analyst Ken Fisher, from his most recent press release, “The coming weeks will test everyone but there is a bright future nearby. The world is able to adapt and prosper. While the cause of this market disruption is highly unusual, the market will do what it always does, namely, move ahead of the economy and foresee the better future, long before the headlines”
What therefore for the UK Residential Property Market in all of this?
There have in recent weeks been some commentators / naysayers in this world skewed by social media and sensationalist journalism, who have been making ill-founded judgements based on a complete paucity of facts. A buying agent is quoted in The Telegraph this week, as advising her buyer clients to make offers of 15-20% less than quoted asking prices and one suspects that she won’t be successfully buying properties for many, if any, of her clients in the coming months. There is also speculation by the national press that UK property market trading volumes will drop during this period by as much as 60%.
What therefore are the fundamentals that will in all likelihood insulate the UK residential property market from the worst ravages that this virus could wreak upon it? :-
Firstly, this is no banking or financial markets precipitated economic crisis / recession, where typically the inequality between the ‘haves’ and ‘have nots’ is exposed in tooth and claw, with a consequent race to the bottom in property price terms and those that ‘have’ take full advantage of it – In other words the personification of Warren Buffet’s sage advice “You should be fearful when others are greedy and greedy when others are fearful” albeit his words specifically pertain to the financial markets and not the housing market per se. So no, in point of fact what we are living through now is very far from a banking / financial markets precipitated shock / recession, for this is a unique event outside of (World) war time, where HM Government ‘helicopter money’ comes to the economic rescue and almost entirely levels the playing field for everyone involved, which in and of itself puts the housing market in stasis or a ‘holding pattern’ if you will. Stock markets conversely, thrive or fail on company earnings and for the most part there won’t be any company earnings whilst manufacturing and buying stops as the virus is dealt with, so investors always in such circumstances adopt a short term mentality pull out and dive in to safe havens, so no-one should be surprised.
Secondly, if you have few or no property sales transactions taking place and mark my words, this event will virtually and naturally halt transaction numbers and unusually freeze current sales that are underway, until the ‘lock-down’ period is past, so they themselves will in the main will be delayed, as distinct from aborted. With no transactions there is no data and with no data there is no catalyst for dramatic house price falls to be based upon. Only some unscrupulous buying agents and I have no doubt some buyers with a vulture like mentality, will try making audaciously low bids for the available property stock during the coming weeks. Bear in mind however that the last near 4 ‘Brexit’ years have dialled a great deal of realism in to UK residential property pricing, so this, coupled with interest rates being at barely above 0%, will serve to ultimately protect the market. Leading economists now tell us that we are in for a long and low, low and slow decade in terms of the behaviour of interest rates, so rapid spikes upwards that can destroy a housing market are not going to happen any time soon.
Thirdly, COVID-19 aside, the UK’s demand for housing still outstrips supply and whilst there needs to be a revolution in house building, including the provision of social and affordable housing that the British buying public deserve, from a ‘lifestyle’, architectural styling, built environment and sustainability view point, the fact remains that the overwhelming appetite is for this to remain a homeowning democracy. The latter being an issue that will come to the fore over the coming decade, beyond the current public health crisis.
Finally, what we are going through now is an ‘exceptional’ event and there are strong parallels with the 2001 terrorist attacks in New York, which had a seismic effect on public sentiment and our global view as to our public and personal safety. Post that event, the markets, financial and property were on track for the former just weeks down the line and for the latter 4-5 months later, once the ‘fear’ of similar events occurring on this scale again, had subsided.
COVID-19, with its containment / lock-down phase being introduced, has inevitably led to a period of panic, as has been evidenced in the public’s displaying of a ‘bunker mentality’ in their supermarket food and provision buying habits. As people acclimatise to what has to be done to curtail levels of infection, we are bound to get to a period of consolidation, at the end of which we are where the Chinese nation are now (c.8+ weeks in) and beyond this we are then living what people are starting to call ‘the new normal’, which will be contingent upon or balanced by, news of vaccine technology advancing apace.
It is likely therefore that the positive market fundamentals that were driving the UK housing market up until just a few weeks ago, will be re-ignited as we enter the mid-late Summer months, so anyone grandstanding and trying to create negative market sentiment will find their ‘soundbites’ drowned out by the deafening roar of the fact that people will not sell over this period at unjustifiable discounts to market value and why should they, given that this time around, we are all in this together.
Gavin West
Managing Director
WEST-The Property Consultancy
26.03.2020
