Market update - June 2021
Well, it’s finally over.
No, not England’s involvement in another major football tournament.
Whilst Angela Merkel was busy plotting to have the English banned from Europe’s beaches this summer, the men's football team were quietly going about their business.
By the end of Tuesday evening, it was so long, farewell, auf wiedersehen and goodbye. After all those years of hurt, who doesn’t like the sound of that music?
The end of the Stamp Duty holiday
Whilst both Germany and France have seen their time at the Euros come to an inglorious end, I was of course referring to the final day of the Stamp Duty holiday.
As solicitors and estate agents around the country breathed a collective sigh of relief, the 30th of June marked the end of one of the busiest times for the property market since records began.
Recently released data from HMRC showed the remarkable effect that the Stamp Duty holiday had on sales volumes, particularly in the run up to March this year (originally scheduled to be the end of the incentive scheme)
Data from Rightmove shows that since the tax break was announced in July 2020, a total of 1.3 million buyers across the UK have benefited from it.
A remarkable 12 months
Zoopla is reporting that demand is 55% higher than ‘normal’ levels, with total sales listings on the platform down 24%. In May 2019 it took an average of 42 days for a property listed on Zoopla to find a buyer, in May 2021 it was nearly half that, at 22. In some areas of the country, house price inflation is at a ten year high.
Savills have released their own set of data, and it’s really very interesting.
Coastal and country houses are up 14.6% and 12.9% respectively. The Cotswolds is up 11%. Prime properties across London with large gardens? Up 6.2%. Properties with no outside space? Down 0.9%. London houses are up 4.3%, London apartments are down 0.6%. A six bedroom house in the key London W/SW postcodes? Up 8.2%
Propertymark recently reported that there are now 20 buyers for every available property, with a third of agreed sales in April and May going for above asking price.
These findings align with data from Rightmove, who reported that 37% of homes sold in January this year went at or above asking price. Overall, buyers in England and Wales paid an average of 98.1% of the final asking price, the first time ever the percentage has exceeded 98%.
As per the Savills data, this was far more pronounced outside of London.
GDP vs real household disposable income
When the government announced the Stamp Duty holiday in July 2020, the country had only recently emerged from the first nationwide lockdown. The measures were introduced in an effort to curb the worst effects of the pandemic on buyers' finances.
The thinking behind it was pretty clear, and based on some recent evidence. The owner-occupier market is heavily influenced by the economy.
When GDP contracts, house prices usually fall. Taking the financial crisis of 2008/9 as an example, GDP fell 6% between Q1 2008 and Q2 2009. House prices during roughly the same period? 20% down, peak to trough.
Compare that to the first six months of 2020, where GDP fell an incredible 22%. You can imagine there were a fair few sleepless nights at 11 Downing Street.
What Rishi didn’t count on was the effect of the furlough scheme. Historically, every 1% fall in real income has led to a 2% reduction in house prices.
If incomes had suffered the same fate as GDP, a double digit fall in house prices could have been on the cards. As GDP plummeted, household disposable incomes also fell, but not catastrophically.
By the end of 2020, it was back to pre-pandemic levels. The property market was not only saved, but also given a real shot in the arm (I couldn’t resist).
Buy four, get one free
The government did its bit, introducing the Stamp Duty holiday (1), keeping interest rates historically low (2), continuing the Help to Buy scheme (3) and backing 95% LTV mortgages for first time buyers (4).
However the pandemic also led to a once in a generation reassessment of homes (5). I discussed in April’s market update how being close to open spaces and local amenities has replaced proximity to an underground station as indicators of value and desirability.
This too is reflected in the Savills statistics. Buyers want more space, both internal and external. Some have moved out of cities to achieve this, some have upsized locally.
In this context, the domestic housing boom over the past twelve months makes sense. With the benefit of hindsight, maybe we didn’t need the Stamp Duty holiday at all.
However it’s now over, and the furlough scheme is also coming to an end. The indicators are that we will now return to some kind of normality.
Or, to coin the phrase, the new normal.
Home will still be more important than ever before, we’ll just have to pay for more of it ourselves.
Data compiled from Prime Resi, Savills, Knight Frank, Rightmove, Zoopla & Professor Geoff Mean of The University of Reading.
Things I’ve been inspired by this week
When Tim described Sam Lamott’s interview with Paul Williams as one of the best podcasts he’d listened to in the past 12 months, it was all the encouragement I needed. It didn’t disappoint.
Paul Williams is an American composer, singer, songwriter and actor responsible for some of the great songs of the 20th century. But we’re not here to talk about any of that, we’re here to talk about Paul’s biggest accomplishment, finding grace. Paul got all the fame, money, and acclaim anyone could ever hope for, and none of those things filled the emptiness and loneliness inside. This is a conversation about finding our way home and feeling comfortable in our own skin.
You can find it here.
Breaking off the engagement by Chris Best.
Chris is the founder of Substack, which describes itself as “a place for independent writing”. It also happens to be the platform I use to mail out my weekly blog posts.
In Last week’s blog I talked a little about social media, algorithms and mental health. Chris has copied my idea (he probably didn't), and written a brilliant piece.
“For a while, it felt like we were getting a great deal. Social media giants gave us rekindled friendships, family photos, even the occasional uplifting story or useful insight. But too much of what we’ve received has been toxic gruel, tube-fed (through aptly named “feeds”) by sophisticated algorithms designed to exploit our worst impulses and keep us agitated, excited, engaged”