Agents hit back as economists forecast 14% house price crash

The Centre for Economics and Business Research (CEBR) has issued a stark warning of a drastic 13.8% drop in average house prices next year.

The economists warn the current market is “defying gravity” and is at odds with the wider economic turmoil.

The CEBR said this disconnect is due to the increased Stamp Duty threshold, the release of pent-up demand from before the pandemic, a ban on mortgage repossessions and the job retention scheme that is support incomes.

Pablo Shah, senior economist at the CEBR, said: “What most of these factors have in common is that they are transitory in nature.

“Indeed, the coronavirus job retention scheme was cut after August and it, as well as the ban on mortgage possessions, is scheduled to end on October 31, while Stamp Duty will revert to its original level in April 2021.

“Moreover, pent-up demand from the period of lockdown will eventually work its way out of the system in the coming weeks.

“Our analysis suggests that prices will start to fall significantly towards the end of the year and the first half of 2021, though there might be a short spike as the Stamp Duty reduction comes to an end, with average house prices forecast to be 13.8% lower in 2021 than in 2020.”

Estate agents, perhaps unsurprisingly, are less pessimistic about their being such a drastic cut.

Ed Mackenzie Smith, chairman of Mackenzie Smith Properties, told EYE: “There are a lot of forces shoring up a reduction in values.

“Low-interest rates take the pressure off vendors needing to sell. If they don’t get their price they can ride it until their position, or the market improves.

“We have a mature rental market, this means vendors can take a longer-term view and let out their property rather than be forced to sell.

“Although there is a Stamp Duty incentive in place, historic rates have pushed people into extending and improving their homes rather than moving.

“This has cut off the supply of secondhand property coming to the market and as such, agents have suffered from supply and not the demand for property.

“Even during the banking crisis of 2008, the supply of property did not increase to a level that provided too much choice. It was the general uncertainty that caused buyers to hold off. Values did fall but recovered very quickly in 2009.”

Simon Wilkinson, senior partner at the Wilkinson Partnership, suggested the divorce or separation rate could increase amid the lockdown and the pandemic, leading to more houses going on sale.

He also highlighted other issues such as a surge in births meaning more people need to move, a change in lifestyle and working patterns and the possibility of a V-shaped economic recovery.

Meanwhile, Iain McKenzie, chief executive of The Guild of Property Professionals, warned against the market talking itself into a crash.

He said: “I see the current rise in housing prices as a short-term spike with it returning to a more fluid marketplace in the next two or three months.

“I don’t predict we will see any significant falls as housing market has been resistant for a number of years despite having to contend with things such as Brexit and now the pandemic.

“The property market has a remarkable ability to sustain itself.

“Of course there are some bumps along the road with the rise in unemployment and the end of the furlough scheme, but if there is a decline in the future, it will be a short decline and the market should bounce back very quickly because of positive consumer sentiment and pent up demand.”

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  1. NewsBoy

    I’m sorry everyone but you won’t be able to talk this market up for long.

    The country is about to enter the greatest economic crisis since WW2 and it would very unwise for any of you to expect anything less than a horrible challenge in 2021 to 2225.

    As always it pays to hope for the best but plan for the worst. It is also worth remembering that the property market has always had a habit of correcting every 7 years or so. It is now  12/13 years since the last one!

    1. forwardthinker

      Agreed. If you don’t believe there is going to be a price correction then you’re living in cuckoo land. If you’re a good agent you can do well in a down turn as well as a rising market anyway so no need to fret.

      There is an under current of rising unemployment not being mentioned in the media. Once the furlough scheme is removed a lot of people will suffer the same fate.

      Always predicted from lockdown the housing market will move in a U shape over the next 12 months when furlough support is removed. People buying now are do so at the start of that shape.

      It’s just around the corner flower

      1. NewsBoy

        Todays unemployment figures don’t help either.

      2. AlwaysAnAgent

        Prices correct every 7 years? Maybe you could explain this as it doesn’t match rises or falls in the last century. A recovery can sometimes take this long, but the correction cycle is much longer than 7 years.

        You also forget that anyone looking to hold a property long term doesn’t care about short term cycles. That’s an important factor in our market.

  2. EAMD172

    There are two things that have created the boom and bust markets of the past 38 years. Firstly, during the 1980’s FTB homes went from being a 2-3 bed house in 1982 to a studio in 1988. This meant that price of properties rose disproportionately and then a mass surge was caused by the removal of double MIRAS in 1988. Secondly, making properties more valuable by increasing lending multiples from 2.5 times joint income to as much as 7 times income at times. The government/Bank of England has done a good job of stabilising the market since the credit crunch in 2007/8 but now they have added a little too much fuel to the fire pushing prices a little too rapidly. They also have nowhere to go with interest rates to avert a drop. It won’t be as bad a previous crashes as the SD holiday is increasing supply as well as demand. But there will be a slowdown in the market, if not so much in prices. We are now in a situation with ultra low interest rates that price increases can only be sustained at the same level as wage increases in the medium to long term. It’s just maths. House builders and banks have nowhere to go to increase prices unless shared ownership in secondhand homes is introduced en masse or the HTB scheme for the same market was more usable. Let’s hope not.

    1. NewsBoy

      The stamp duty holiday came far too early and can only increase the boom and bust likelihood.  It would have been much better if it had been delayed until the decline was obvious. 

  3. International

    I think we all slept better before the arrival of analysists !

  4. James White

    Perhaps a 20% drop in some overheated areas and a modest 5% drop in others.

    Some areas of the country will be more resilient than others as always perhaps with no change.

    An alarmist headline and article that won’t help anyone.

    Don’t under estimate the lack of supply, low borrowing rates and the availability of credit being balancing factors – oh and people need somewhere to live too……

    1. TPCTom

      100% agree – the market never drops by a level amount across the country. I’ve often found living in the South West that very little that happens on a national level has a big effect on us down this end of the country. People will always need to sell or buy for one reason or another!

  5. GPL

    What will be ……will be.
    In the meantime, I (and many, many others in this industry) will get on with our work.
    Everyone has an opinion …..and as we have witnessed, they differ from analyst to expert.
    As yet, no one has contacted me to tell me, or verify …..that I’m dead …..or Planet Earth explodes tomorrow at Noon.
    See you tomorrow ……or not.  

  6. jan - byers

    Whatever another so called expert giving an opinion zzzzzzzzzzzzz

  7. Woodentop

    Lol. House prices have needed to drop by 25% or so over the last decade and haven’t and went the other way which puts all the doom and gloom analyst’s in the dog house over the financial crisis. Will it happen this time? Not a fat chance. There are many influential reasons why it can never happen, importantly the ability of a seller to swallow such a fall unless everyone in the chain follows and the financial institutions accept a massive £multi billion hit. Oh yeah!
    There have always been peaks and troughs but Covid-19 is not a permanent problem. Just as happens with wars, once over the population rebuilds and all those business’s that closed will re-open (not necessarily under the same manegment) as the demand was, is and will continue to be when we get back to normal.

  8. majortom1

    The markets just too easy at the moment and we are seeing the typical race to the bottom on fees.Be good to get a slightly more difficult market  so we can get a decent fee for a decent job done and sort the wheat from the chaff.

    1. jan - byers

      I do not think if prices go down you will get a better fee.  There will still be agents undercutting. vendors want a deal even more so.


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