One interesting side-effect of Covid and the response has been that many people haven’t seemed to even notice Easter this year. Have we all just become automatons, living to work, as working from home creeps into our lives? The positive for a hugely service-driven economy like the UK might be a massive increase in productivity (this will take time to manifest – but a lot of the academic literature points to the fact that this may well be the case) and the UK has needed a productivity boost for the past 12-13 years. It would be perverse indeed if the productivity puzzle was partially solved by a global pandemic!
That also leads to the case for a holiday……what will summer look like? Regardless of the rules at the time, many seem to be set on a UK staycation this year as they deem air travel to be too dangerous or too undesirable at this time. With the figures as they stand, North America looks a more likely destination than Europe, which is a strange turnaround for the UK. Taking emotion out of the equation, this looks likely to boost the UK economy.
Behaviour around vaccines and resultant passports continues to fascinate me. My understanding is that as of 21st June all measures could be relaxed but the current chatter around “Home” vaccine passports doesn’t suggest that will be the case. All measures relaxed if every entrant to a piece of private property can prove their vaccinated status? Bit of a difference there. I think the vaccine passport for going abroad obviously requires international collaboration and co-operation – many of the strongly “anti” vaxx or anti vaxx passport lobby come across as being annoyed that they have to consider how their behaviour impacts on others, internationally we really will have few options about how to play ball. Once again we are at an interesting and controversial point in the Covid “story” and resulting legacy.
This week’s “Easter Egg” supplement takes a look back at the first quarter of the year and the major property and economy related news, and their likely impact which has either started to play out or may play out in the future.
It is probably unsurprising that the beginning of Q1 2021 saw some very bearish predictions. We were coming off the back of a hot year, that industry commentators were struggling to explain and certainly struggling to justify. With the data that has become available this quarter, it seems that this story has been easier to explain. Mid-Jan saw predictions of price drops of up to 6.2% in Q1 21. Much of this of course may well have been predicated on the supposed end of the stamp duty holiday on March 31 and the end of the furlough scheme on April 30 – both of which have of course been moved. (forecasts from reallymoving, who use real time conveyancing quote data to establish where the market will move – they claim a strong correlation with the land registry data, but they missed the mark on this one of course). Interestingly though they also forecasted a rise in gazundering at the end of the stamp duty holiday – that logic, if sound, could hold when the SDLT holiday does end (or half-end) in June and then September.
As has often happened during the whole Covid situation, we also have a live experiment happening right now, which suits those of us who don’t operate in this market, or are spread across multiple markets. Scotland have not extended their LBTT (equivalent to SDLT) holiday beyond March 31st. The “cliff-edge” is here. Their window was up to 250k for relief rather than 500k – and LBTT in Scotland does not even kick in until £145k. Bearing in mind these numbers need to be adjusted for the difference in prices between the devolved nations, a more equivalent holiday in Scotland would have seen relief be up to the £325k band (£250k – £325k is the 5% band in Scotland, which in England is £250k – £500k), so the drop here is somewhat equivalent to the drop that will occur from Sept 30 in England, when the holiday stops being up to £250k and the 2% band returns. Writing this, it makes me wonder whether Rishi and the team have used this as a bit of an experiment…..alongside trying to keep the market moving and buoyant.The differentials in the pricing and the beginning of the band does make it much tougher to learn too much from what will play out in Scotland – but I will be watching closely. Most transactions in the UK are in the £150-£175k band (if you order the bands in terms of transaction volume) and the “bell-curve” fans out from there, so we are likely 6 months away from the major impact of the withdrawal of the SDLT holiday in England.
Some of the monthly figures have softened a little looking back at the lagging indicators (the ONS are a couple of months behind, so we only have Jan 2021 figures at this time – slightly softer than December 2020 figures, but December 20 is looking back at December 19 which was a very flat month – Jan 20 saw stronger transactions on the back of a Boris bounce in the auction/investment market apart from anything else).
The annual price rise figures have started to soften in general on the fastest of the indices to publish their data – Nationwide – because the market was so much stronger in Q1 2020 apart from anything else. But what has played out is -0.2% Jan, +0.7% Feb, -0.2% March. So, not that noisy, and relatively stable and tentative. Presumably a manifestion of the fact that supply was still short and thus kept prices stable, with many transactions still delayed or not happening because of Covid uncertainty or hesitancy amongst vendors – bear in mind the vast majority of Nationwide’s figures will come from owner occupier mortgage transactions which usually take 3 months (or 4!) to play out on average, so these are decisions largely made in Q4 2020.
It is difficult to see the next 6 months being any easier for the investors searching for deals at the moment, or for owner occupiers looking to move. Unemployment figures will no doubt play a major part and a lot depends on your view of the breakdown of the people currently taking part in the furlough scheme. I definitely have a view (that things won’t be as bad as published) and predictions of the unemployment rate have halved since the start of the furlough scheme. I still feel they will be a little better than current forecasts (6.5%) and this won’t be a massive issue in the owner-occupier market, because the job market pain has been concentrated significantly in sectors which employ a lot of younger people, and under-25s are the biggest employment casualty (hence the kickstart scheme and government focus on this area). However, major analysis of furlough is yet to come in the following weeks – or stage one of that analysis, anyway, so watch this space!
The likely outcome remains volatile, I have predicted a less snappy recovery than some are looking forward to because in my view, many new habits have formed since lockdowns began, and it will take a few months to shake those off. The hesitancy around holidays abroad in some parts of the population will, I would suggest, manifest in the spending of all these savings that have been accumulated and consumption may not see the breakneck rise that some are predicting. However, economic performance has once again been better than expected and that will help. For housing, we need the supply back in the market, that much is for sure – but on June 21st for example will all those who have been hesitant suddenly start to list their houses? I don’t think so.
Utimately, underneath it all the underlying price-earnings ratio of housing still looks relatively stable. What we can’t do at the moment is use some of the old ways of calculating things without factoring in one of the things we’ve been talking about for the past 12 months – working from home. In recent weeks I’ve had a few contacts who were adamant that they would never be allowed to work from home, in high-paying London-based jobs, announce that they are moving to the suburbs – some 60-90 minutes out of a London terminal on the train. They are looking at much larger houses than they currently live in, and have 2 days a week in the office to consider. The companies have done this begrudingly, it seems, but presumably have access to their productivity data and also have leases to renegotiate on expensive London office space…….this is only anecdotal but I expect this trend to continue and data to show itself as we go through 2020. The other side of this is that currently the percentage of £££ in the pocket spent on getting to the office, but also going to Pret for lunch and perhaps for a drink after work, is likely to go down on the back of this. So, more disposable income for spending on other items other than office-hub-centric spending (or transport spending). The jury is still out of course, but the fact that it only takes around 3 months to form strongly ingrained habits means that there’s a lot for the “nudge” team to deal with.
One thing that raised an eyebrow for me on this front during Q1 was a short flurry of activity around a headline from Rishi urging companies to not close offices down completely. This looks predetermined to try and influence corporates because of significant fears around city centres. There is a significant amount of validity around the statements that he made – of course – but this seems to ignore the reality of corporates and their general focus – it is often joked that PLCs will look at the next quarter and the next quarter only, but the average CEO (non-founder) is exceedingly unlikely to be looking more than 2-3 years in the future for self-interested reasons. The impact on younger staff members who need the interaction for their growth (apparently) is unlikely to be high on the agenda of most boards, in my experience.
From my corporate office experience (which is admittedly limited!) I could easily see a situation where 1-2 days a week in the office and 3-4 days a week from home, would mean a better lifestyle, a smaller bill for the company for renting or maintaining office space, and would see those 3-4 days as the “deeper work” days with the 1-2 days being for managing emails, having face to face meetings, and doing all of the things that are positive for the company and the individual from the office without all of the negatives that go with long commutes, open plan offices full of distractions, etc. etc. From an employers point of view, I see fewer places to hide also – which will benefit them from a productivity perspective. If people are working from home, systems have to improve to measure their individual performance. A lot of the tech was already there but underutilised, as has been noted before. This whole saga seems to have played out a little more in Q1 – my view has been that suburbs will flourish on the back of city centres being negatively impacted, from a pricing and demand point of view – plenty of room yet to see this play out, or to prove me wrong – I’m actively acting according to my view – should city centre opportunities start to come up, I will consider them on their merits but inevitably have a bearish viewpoint until the facts start to unfold a little more.
One final part of the Q1 21 analysis that is important is the auction market, of course. We now have enough data from one year of the pandemic, effectively. The year March 2020 – February 2021 shows 24% fewer pieces of stock to market, with a 3% rise in the succcess rate in that time. The amount raised has only dropped 10.2% year on year – which either means more expensive lots overall coming to market, or a massive price increase – or, the truth, which is a bit of both. 24% less stock and only a 10.2% drop in total amount raised is quite a differential, but extreme supply constrictions would always achieve something like that – it simply puts the numbers around it.
Those trends were even more concentrated when looking at residential specifically. The equivalent figures are stock down 21.4% but amount raised only down 7.3% (so only about a third of the drop in stock, really). Incredible when you think about it. It is difficult to drill down in this data to look regionally because the numbers start to look too small and can easily be influenced by 3 or 4 lots, which is not ideal for drawing any conclusions.
As always, feedback, likes, shares and comments are much appreciated. If there’s anything macro or micro you’d like to see featured in a future supplement, drop me a message or leave a comment and I will add it to the list! Thanks for reading.