Market Update: A Year in Review
Updated: Dec 17, 2021
After last week’s subdued Birthday celebrations, and with 2021 drawing to a close, it seems a good time to reflect on an astonishing 18 months in the property market.
Here’s a snapshot:
2021 was the busiest housing market since 2006. According to Zoopla, across the UK one in every sixteen homes has changed hands.
Data from Savills shows that the average UK house price rose by 12.3% over the past 18 months. Annual transaction hit 1.55 million in the year to September 2021, 30% more than the 2017-19 average
2022 is looking like it will be a lot less frantic. Rightmove are predicting 5% growth outside of the capital, and 3% in London
Well, I think it’s quite nuanced.
Driven by tax cuts, historically low interest rates and a re-setting of priorities, transactions in 2021 will reach their highest level since just before the economic crisis of 2008.
The outlook was very different back in March 2020, with most speculating on just how bad the economic impact of Covid 19 would be on the housing market.
Nearly two years later, the evidence is there for all to see. Both the number of transactions and house price growth have been unprecedented.
Of course when looking for an explanation, you could cite historically low interest rates and a raft of Government intervention which included the Stamp Duty holiday, the continuation of the Help to Buy Scheme and 95% mortgages for first time buyers.
Although we had already been in a low interest rate environment since 2009. Whilst the Government initiatives undoubtedly provided impetus in some markets and locations, I’m not sure that the real drivers are that easy to rationalise.
I’ve discussed this before, but as human beings our desire for wellbeing sits right at the bottom of Maslow’s Hierarchy of Needs.
The physiological elements of shelter, warmth and sustenance are as old as the human race, and yet the last couple of years have really brought them back into sharp focus.
Of course when Abraham Maslow wrote his short but brilliant Theory of Human Motivation back in 1943, the world was an entirely different place.
As the updated version of his original theory (by way of internet meme) clearly shows.
The pandemic brought with it levels of disruption to our daily lives not seen since the Second World War, and it was something that the majority of the nation simply hadn’t experienced before.
If you look at the pyramid again, you’ll realise that when Covid was at its worst, almost nothing was guaranteed.
Your security, stability and freedom from fear? No longer certain.
Your friends and family? Sadly these were people we could no longer take for granted.
Recognition and respect? Finally being paid to nurses, doctors, and delivery drivers, instead of Kardashians.
And in the early stages of the first national lockdown, you could almost forget the top section entirely. It was about survival.
So in a moment in time when what was going on outside of your four walls felt so uncontrollable, the walls themselves seemed more important than ever.
It was a period of time where people reconnected with home, on both a physical and psychological level. It wasn’t just a race for more space, it was an effort to create environments where we felt that our most immediate needs were being met.
It wasn’t just our homes either.
Data from Savills has revealed the increase in transactions by buyer type in the year to June 2021 (vs 2017-19)
Mortgaged first-time buyers +13%
Mortgaged home movers +31%
Cash buyers +22%
Buy-to-let investors +31%
Let’s just focus on the last sector for a moment.
Buy to let investors have had it tough over the past ten years with successive tax changes. The idea was that by making property investment less attractive, first time buyers would be better able to get on the ladder.
But it hasn’t really worked. The average UK first time buyer is spending £250,000, and the average purchase price for a buy to let investor is £220,000.
So they’re competing in the same market, and whilst the number of transactions completed by first time buyers has risen by 13% in the past year, the increase for BTL investors is 31%.
Well again, you could point to the increasing demand in the rental market, with RICS reporting the highest quarterly uptick since records began in 1999. As a result, the average UK rent increased by 4.6% in the year to September 2021.
However I would also suggest that the reasoning is slightly more basic. In times of instability, people often turn back to asset classes which are the easiest to understand.
Everyone needs a home, either to buy or rent. In the heady days of NFT’s and Cryptocurrencies, property is something everyone can understand.
It's as safe as houses.
So it doesn’t really matter whether you’re buying a home for the UK average of just under £270,000, a hotel branded residence in central London for £25,000,000 or investing your hard earned money to become a landlord.
Everyone is looking for the same thing. A feeling of safety, security and wellbeing.
Property has always been something which can tick those boxes, and never more so when everything else is so uncertain.
Data provided by Prime Resi, Savills, HMRC & RICS
Things I’ve Been Inspired By This Week
I’ve read a couple of really interesting articles in the past seven days.
One about how an American mathematician accumulated a net worth of nearly a billion dollars. By using an algorithm to gamble on horses.
You can find that here.
And another one about The Jeff Bezos Hockey Stick Rule, which you can find here. (Spoiler - it has nothing to do with Hockey)
Both have to do with how the use of technology is changing everything.
But I appreciate that those are pretty niche, so here’s something from James Clear’s weekly newsletter, which is my new favourite thing.
"You don’t need to catch every break if you’re willing to keep trying.
Every winner has an archive of losses, but each attempt creates the chance for a victory.
You need to be patient, but not passive. Active patience."