Over the past 20 years no group of people has been left as disappointed as those who have been hoping for a collapse in house prices. True, Christmas arrived briefly in 2008 and the early months of 2009, but we never got quite to the cheap stage. Once interest rates were lowered to 0.5 percent the market – at least in London and prime parts of the South East – rebounded, stranding anyone who had been waiting for years in the expectation of picking up a semi for tuppence.
But even the 2008/09 slump seems a lost dream world for bargain-hunters. There were plenty of grim predictions of what would happen when the housing market reopened from its Covid-induced slumbers. Would prices open 20 percent, 30 percent down? No a bit of it. The Nationwide House Price Index recorded that prices in September were 5.0 percent percent ahead of where they were a year earlier. They rose by two percent in August alone.
How on Earth can you collapse the economy, with GDP falling by 20 per cent in the second quarter, and yet the housing market rebounds? It’s like something out of Noddy Land. It doesn’t seem to make any sense whatsoever – except, that is, if you see the summer’s unexpectedly strong market purely as a function of Rishi Sunak’s decision to introduce a six month stamp duty holiday.
For anyone whose income has been unaffected by Covid 19 – and there are plenty of such people, who work either in the public sector or those golden parts of the economy which have benefitted from lockdown – it has generated a one-off opportunity to avoid a stiff stamp duty bill for moving home. Moreover, there is suddenly an incentive to move: many people who spent a miserable lockdown in a flat or a house with no outside space may have been inclined to look for somewhere with a garden – and with a spare room which can be used for working from home.
There may be another effect, too: as in 2008, when the collapse of banks led investors to look on property as a relatively safe home for their money, turbulence and under-performance in the UK stock market may have led people to start thinking of other homes for their wealth.
But as with any investment, if it seems too good to be true then it probably is. Could this be the first sign of cracks in the edifice? Pantheon Macroeconomics has been studying that earliest of property market indicators: the number of people logging on to the main property search websites, Rightmove, Zoopla and On the Market. Visits last week, they found, have fallen seven per cent since their peak on 23 August.
That hardly sounds dramatic, but this month will also see the end of the fantasy world in which the employment market has been living for the past six months. The furlough scheme will end, exposing large numbers of jobs which are no longer viable. Inevitably the unemployment rate – which has remained near the 45 year low it reached before the crisis – will rise. But the real crunch point will come next March when the stamp duty holiday ends. The closest parallel we have to this is when the then Chancellor Nigel Lawson announced that couples would no longer be allowed to pool their tax-free mortgage allowances in his 1988 Budget. Crucially, however, the measure did not take effect until that August – with the effect that prices surged through the early summer as homebuyers tried to beat the deadline.
The lucky ones were those who missed the deadline and waited four years, by which time house prices had plunged. Could the same happen again? Possibly. However, I would never bet against the ingenuity of chancellors to come up with wheezes to try to prop up the property market.
For government after government over the past few years there has been a very clear rule for the housing market: it’s laissez-faire on the way up – and intervention on the way down. They won’t intervene to tame price rises, but they will do everything they can to prevent a collapse – not least because if the property market collapses, the banks are faced with collapse, too. Don’t expect it to be any different this time around.