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Housing market restart will provide boost but may be short-lived

The pipeline of sales transactions that are in different stages of progress should be able to complete fairly quickly, analysts said, benefiting cash flows for estate agents and housebuilders

Rightmove PLC -

After the government lifted the coronavirus ban on home buying activity, estate agents, housebuilders and many households are likely to enjoy a short-term fillip from a rush of completions, but analysts and economists warned that the housing market is likely to be hit hard over the rest of this year and next.

From Wednesday, housing secretary Robert Jenrick confirmed on Wednesday morning that estate agent offices can open, house viewings and show homes can start again, and removal companies and other parts of the sales and letting process can all begin with immediate effect, if they follow new social distancing advice.

After 297,000 transactions were completed during the first quarter of the year, around 373,000 property sales agreed between November 2019 and March 2020 are estimated to have been put on hold during the Covid-19 lockdown, according to Zoopla.

The announcement is potentially a major positive for estate and letting agents such as London-focused M Winkworth Plc (LON:WINK), said analysts at Shore Capital, with its shares and those of Foxtons Group PLC (LON:FOXT) both climbing around 5% on the day. 

“It appears to be good news for any company involved in housing and housebuilding, but especially so for London estate agents, since the capital had seen the biggest impact of the ‘Boris Bounce’," the ShoreCap analysts said.

With a large pipeline of sales transactions that are in different stages of progress across the London market, the analysts assume that some of these will now be completed quickly and fees collected, benefiting cash flows for agents.

The chief financial officer of Rightmove PLC (LON:RMV), the FTSE 100-listed online property portal, told a UBS conference call that the company is planning for circa 750,000 housing transactions in 2021, down from 1.2mln in 2019.

But it expects the number of estate agents to go out of business is likely be above the 500 or so that it had previously predicted, though still well below the near-2,000 that were lost in 2008.

While many of the transactions backed up in the lockdown should now be able to close in this and next quarter, UBS analyst Adam Berlin said: “What is uncertain is how many new sales will be agreed during the rest of 2020 if economic uncertainty dissuades buyers from committing to a house move, or being able to take out a mortgage.”

House price predictions

There is little consensus for the likely fall in house prices for 2020, with Knight Frank expects a drop of 3% by the end of the year, Savills going for 5-10% and CEBR predicting a fall of 13%.

Lloyds Banking Group this month predicted a fall of 5% for 2020 but in a worst-case scenario said a 10% fall this year could be followed by falls of at least 10% for both 2021 and 2022, cutting the average price of a home from £223,000 to £156,000.

Savills’ head of residential research, Lucian Cook, said he expected transactions to fall 20-40% and said by opening up the market early the government was likely to reduce the risk of more dramatic price reductions, meaning he suspects the fall in house prices will be nearer the bottom end of his 5-10% forecast range. 

While loosening the coronavirus restrictions it will allow activity to start to recover, economist Hansen Lu at Capital Economics said he expects progress to be slow. 

“Firstly, housing sales take months to complete. So any initial wave of transactions would come from sales agreed before the virus hit. 

“Yet many with paused sales will be among the 7.5mln now furloughed, and thus likely to delay or cancel their sale. And beyond that, uncertainty will force all buyers to reconsider in-progress purchases.”

The best guess from Capital Economics is that at least a quarter of ongoing sales will end up cancelled, with others delayed as buyers assess their job prospects, seek discounts, or wait to see if prices fall.

Further on, with the UK now having entered an economic recession, continued economic uncertainty will also slow the housing recovery, with the pool of prospective new buyers having narrowed significantly. 

“Even where households are unscathed economically, the behavioural side of the lockdown will be a challenge,” said Lu, expecting housing sales by the end of the year to still be well below their pre-virus level.

Share prices of housebuilders were mixed, with Taylor Wimpey PLC (LON:TW.) down 3.5% in afternoon trading, with roughly 2% falls for Barratt Developments Plc (LON:BDEV), Bellway PLC (LON:BWY), Redrow PLC (LON:RDW) and MJ Gleeson PLC (LON:GLE), and Persimmon PLC (LON:PSN) down 1%.

Vistry Group PLC (LON:VTY) shares were roughly flat but Berkeley Group Holdings PLC (LON: BKG) and Crest Nicholson Holdings PLC (LON:CRST) both up around 2% to 4,170p and 234.1p respectively.

Quick facts: Rightmove PLC

Price: 600.4 GBX

LSE:RMV
Market: LSE
Market Cap: £5.24 billion
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