What Will Happen to the Market in 2021?
People ask me how I think the housing market will be next year about twenty times a day at the moment so I’m going to break the habit of a lifetime and answer the question. So, here we go. I think the market in 2021 will be similar to the market that we had in 2019 – i.e. broadly flat. Here’s why.
The government’s handling of Covid-19 will have a very negative impact on the 2021 housing market. The economy shrank by almost 25% during the lockdown and the Office for National Statistics has forecast that as a consequence over four million people will be unemployed by next Christmas.
The Stamp Duty holiday which has had a hugely positive impact on the market is due to end on 31st March and this could cause the 300,000 house sales that won’t complete in time to fall through. It will suddenly become much harder to get a mortgage because the lenders are worried that house prices could fall or that borrowers could lose their jobs. Finally of course, there is the small matter of Brexit which could do enormous harm to our economy and seems to have been almost forgotten as a result of the pandemic.
On the rental side, there are concerns that tenants who lose their jobs will default on their rent and worries that thousands of rental properties will be taken out of the market due to a backlog of eviction cases in the courts. There are also concerns that tens of thousands of landlords will decide to sell their properties due to the tax changes, financial problems of their own or as a result of the evermore complex compliance legislation and the enormous fines that are being levied.
Taking all this into account, the future looks pretty bleak but fortunately there are many positive factors which I believe will counter these negative forces.
The first positive factor is that the majority of people have not yet suffered financially due to Covid. I think people can be divided into five groups in this respect. The worst affected are people who work in sectors such as the hospitality industry or the airline industry. They have seen their incomes fall off a cliff and there is no sign of relief anytime soon. The second group are people whose hours have been cut or have been put on furlough. They have typically lost 20% of their income. The third group are people who work in sectors such as insurance or education. Their incomes have remained the same. The fourth group is people who work in sectors such as the food industry. Many of them have been asked to work longer hours due to Covid and are actually better off than they were before. And the final group of people have seen their incomes soar as a result of Covid. These people work in sectors such as IT which have seen a huge uplift in their workload. But it is not just the obvious sectors that have benefited. Many builders are busy building extensions for people to use as home offices. Swimming pool companies are busy building pools for people who cannot go on holiday. Sofa companies are busy making sofas for customers who are spending much more time than they used to sitting on them. In short, there are many people who can still afford to move house.
Another important factor is that mortgage rates are still extremely low. The Stock Market is also very volatile which means that investors still favour property as a safer and less volatile investment. There is also a strong desire to move from buyers and sellers whose current home is suddenly no longer suitable for their needs. They are no longer commuting every day so they want to move from the city to the suburbs or from the suburbs to the country. They need a garden or a home office or just a bigger house because they are spending more time at home. This will help to increase the number of moves.
There is also of course hope that one of the new vaccines will work. But even if they don’t, people are becoming less frightened of the virus. We know much more now about how to reduce our chances of catching it. We know much more about which groups of people are most at risk. Treatment for those who do catch the virus has improved hugely. So survival rates have increased. Perhaps most importantly of all though, our fear of anything new reduces with exposure. Taking all this into account, we will become better at living with the virus and judging its risks for ourselves. Due to a combination of these factors, the economy grew by a record 15% in the third quarter and GDP is now less than 10% below pre-pandemic levels.
So yes, there are dangerous and unpredictable events ahead of us but I no longer believe that the housing market is going to collapse next year and nor do my clients. We have sold record numbers of estate agency and letting businesses over the last three months and the demand from buyers shows no sign of waning. New buyers are entering the market and old buyers are returning. As a result, prices for the right type of business with solid future income streams are increasing.
Let’s hope that my forecast is correct. Adam Walker is a management consultant and business transfer agent who has specialised in the property sector for more than thirty years.