Our latest blog examines the prospects for house prices in 2021
As estate agents, one key question we’re asked frequently is whether we’ll see a sharp decline in house prices as we move forward into 2021.
There have been a number of reports in the mainstream media predicting house prices contracting by as much as 10-15% as we enter 2021, due to a combination of factors – not least the impact of Covid-19, and the stamp duty holiday, which has seen business in 2021 brought forward to this year. But does that mean you need to worry?
Looking long term
There’s no doubt the last 12 months has been a challenging time for all concerned. Although it’s best not to play clairvoyant in predicting house prices moving forward, reports in April 2020 from The Centre for Economic and Business Research (CEBR)* stated that house prices will start to fall dramatically in 2020. This prediction hasn’t materialised, and in light of this, its prediction that house prices will be 13.8% lower in 2021 should be treated with scepticism at this stage.
As with most important financial decisions, it’s practical to look longer term, especially if you’re not looking to move in the next 12 months. Consultancy firm PricewaterhouseCoopers has forecasted that if looking on a national scale, house prices are set to rise by 1% in 2021 to an average of £239,000. However, over a five-year period, house prices are set to grow by 4% to £280,000 by 2025.
Encouraging market conditions in the South East
Taking analysis one step further, if looking on a more regionalised basis, 2020 has revolutionised how we as individuals and families want to live our lives. Property searches with keywords such as ‘ fibre broadband’, ‘outdoor space’ and ‘home office’ have risen exponentially, which has stimulated demand in the South East, as many look to revaluate their work life balance and where they want to live.
Commenting on the situation in the South East, Rightmove’s Director of Property Data, Tim Bannister, said: “Since the market reopened back in May we’ve seen extremely strong demand in the South East, with the number of sales now being agreed up by over 70% compared to the same time last year.
“People have been looking to take advantage of the stamp duty holiday and re-evaluating where they want to live, with many looking for a bigger home with space to work from home, bigger gardens and areas which have better access to green spaces.
“Given this strong demand, we’ve revised up where we think house prices will be by the end of the year nationally, with our new prediction being that prices will be around 7% higher than last year.”
So, for the South East at least, CEBR’s prediction for house prices to begin contracting rapidly at the end of 2020 seems a little off the mark. Indeed, across the Arun Estates portfolio, current buyer demand is remaining strong.
“One of the major influences on house price is buyer demand, so as long as the demand keeps up with the supply of new properties, then prices will at least remain stable,” adds Aldo Sotgiu, Arun Estates’ Managing Director of Operations.
“In Q3 we saw 15% more properties coming onto the market and a massive 50% increase in new buyers looking to find. This ensures that a higher proportion of properties were being sold, with sales up 50% and many sales at or above the asking price.”
Will the bubble burst?
Despite the huge demand we’re currently seeing, is there danger of 2021 seeing this demand fall, due to business being brought forward due to the stamp duty holiday?
“It’s likely that many buyers have brought their buying plans forward from next year and therefore there could be a gap in buyer and sales activity in 2021 as the market is benefitting from it now by creating a mini boom,” says Sotgiu.
“So, is the property bubble going to burst? Well, it’s certainly not sustainable at the current levels, with house prices artificially inflated because of unprecedented circumstances. However, I suspect buyer activity will stabilise in Q1 2021, with a certain amount of normal business resumed.”
It’s fair to say that the unprecedented demand seen in 2021 isn’t sustainable. However long term, house price predictions, particularly in the UK, suggests a positive outlook.
Covid-19 has undoubtedly created a revolution in how we want to live our lives, with a healthier work-life balance sought. This revolution is likely to see demand for property in the South East sustained.
So, for those already on the property ladder and not looking to move in the next 12 months, longer-term predictions remain encouraging. And for potential first time buyers, 2021 may well be an ideal opportunity to make that move…
* CEBR: What is Driving the UK’s Housing Market Paradox April 2020
** PwC comments on the latest house price data October 2020