Sunday Supplement – 06/06/2021

Jun 6, 2021

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Sunday has once again swung around and the weather suggests this could well be the first Summer Sunday Supplement of 2021. The wet season seems to have lasted far longer than expected and some respite on that front is always welcomed for property owners of course.

Some of the noise that I’ve been talking about as a hallmark of 2021 also seems to have reared its head. Pricing looks to be very dynamic all of a sudden. Demand will of course have been messed with thanks to the SDLT holiday but that doesn’t seem to be all……but alongside that as mentioned last week, supply also seems to have come back to something like normal levels over the past few weeks. All the moving parts occurring at the same time make it difficult to cite one or two things that have made a difference, but it stands to reason that with the country meeting its timed opening up target on May 17th that psychologically this would also translate to some offering their houses for sale whereas before they were too nervous or Covid-anxious.

The two observed phenomena over the past 14 days have been a large increase in the number of unsold auction lots, from a percentage perspective – always a leading indicator of where the market is going – and the supply of housing coming back from a 20% constriction compared to normal, about 6 weeks ago, to a much more expected and typical level of supply. No doubt many are also tempted to try and cash in on what looked like a boom, if reading the news, and of course property as a rule generally moves more slowly.

We’ve also seen an increase in leads for sales direct to vendor in the past 2 or 3 weeks, and some relatively realistic vendors who have been absent for a couple of months at least!

We need to be cautious about seasonally adjusted figures too……it is tough to expect things to be the same as a “normal” year. What was observed after 17th May and certainly in the past week which has been school half terms in many parts of the country is people being away – taking that opportunity for a much overdue break.

That’s been stopped somewhat in its tracks as far as going abroad, thanks to the mess that is the foreign office “green” list – fury is the best way to describe some of what I’ve observed this week and you can hardly blame people. Let alone those who run travel related businesses – what a nightmare. The latest proclamation is that the 21st June is being prioritised over being able to leave the UK for recreational purposes…….that tune may of course change again before 21st June! All measures being dropped looks unlikely but something will need to give – politically – on 21st June in my opinion. A hybrid solution would be my best guess.

Interestingly alongside the May Nationwide House price Index which has shown another month of significant growth (the methodology is not published for the index, so it is difficult to comment on the overall accuracy apart from to observe that Halifax, nationwide and then transactions as an aggregate tend to differ especially on a monthly basis), 25% of homeowners surveyed in April said they were either moving or considering a move as a result of the pandemic. This figure was 28% in September last year, but one missing piece of information is what that number usually is in “normal” times. What we do know is that the average homeowner moves about once every 23 years in the UK so that is around 4.5% who actually normally act – it takes a relatively low percentage of that 25% to actually act on their intentions to make for quite a busy market.

One of the largest Covid fallouts which I’ve not addressed over the past months is the want for “different” property. It has been said for many years that there are simply not enough 3 bed semis in the UK and few are built year on year – but of course the trend has been exacerbated in the past year. An extra bedroom as a home office – or a garden large enough for a garden room – are relatively new requirements or just the acceleration of trends sponsored by the pandemic. New stock tends to be dense, is often smaller, and is disproportionately one and two bedroom properties versus the real need. This is something that deserves much further analysis in the future.

One big trend over the last 40 years plus has been fewer people per household; this also translates into more space per head of course. This trend will have accelerated massively over the past 12-15 months as a result of the above.

The implications are a genuine supply shortage of the “right” type of property, which for many encapsulates the housing crisis in a nutshell.

Meanwhile the building materials issues continue but seem to be smoking the developers out – the highly organised (which is of course an extremely important skill for development) have got materials well in advance and procurement has started to take up far more time – those who rely on one or two good relationships with merchants on the other hand or are “just in time” orderers, are feeling the pinch of the materials price fluctuations and seeing knock on results of that in their jobs.

It still seems highly likely to me that the market in late 21 and early 22 will contain lots of half finished developments where people have got started and run out of time, money, inclination or some combination of the 3.

Some more wobbly developments that are well over time seem to be raising mezz finance easily enough on the back of much stronger GDVs – which does make some sense but of course also depends why the development was wobbling in the first place. I’d just think that the sensible move would be to get these transactions finished off ASAP in case the market is flattening and/or blowing off its top. It has to happen at some point of course but to expect a very easy trend to interpret or pattern would be foolish. We might well see a couple of per cent off the top and then sideways or upwards again; it wouldn’t surprise me.

Transaction levels in the commercial sector have looked relatively healthy and normal…..the overall trends I’ve been seeing are:

Limited or no appetite for funding retail – exactly as you would expect, high Street banks are a “no”, challenger banks are a “maybe if they are any of the following dozen sort of shops”, specialist lenders are still lending but pricing has changed (upwards) to reflect a higher risk.

Mixed use sites are attractive to funders.

Office in general is not an area funders want to increase exposure in at the moment.

Industrial continues to be attractive and in shorter supply than required.

Hospitality and leisure hasn’t had much chance to come back yet but isn’t as unattractive to funders as you might think. The expectation is a decent rebound.

Rents haven’t become immediately “correct” in my view as there have been really significant changes in many of these sectors – this means there will be continued opportunities if you call the long term trends correctly.

We’ve still got the SDLT first taper at the end of this month which looks highly likely to go ahead as planned – that cannot NOT have an impact although it will be a far smaller one than the cliff edge would have been – a few weeks of uncertainty seem likely in early July with chain break opportunities and also the likelihood of anything that has been sticking (or has fallen through a few times) being there to be transacted at a fair/opportune price.

Overall it feels like there are far more opportunities than say 6 weeks ago – rather than it just being wishful thinking! But we are simply at the end of the beginning for the post- pandemic market; there’s lots of twists and turns to come yet I’m sure.

As always likes, shares and comments are much appreciated! Thanks for reading!