Sunday Supplement 27/12/2020

Dec 27, 2020

Sunday and that means there’s a supplement due….
And the last one of 2020!

What a year! I’ve been live today with National Property Auctions Ross Harper talking about some of the deals done this year (and not done) and it really puts what has been a very challenging year into context. But will we be left with egg on our face as things collapse in 2021? Let’s lay out some of the hurdles and likely scenarios.

We’ve tried to buy at prices that still look good even with a contraction in the housing market – of course – and so we hope we’ve done the right thing. What is the magnitude of next year’s events likely to be?

It is concerning that many are now predicting an “up” market in 2021. I’d personally have been much more comfortable if 2020 had been flat (the stamp duty soon fueled a lot of the manic activity that has driven prices up), instead we are facing prices up about 5% at the last ONS assessment. We also have to bear in mind it depends on when you measure things……because this year has not been normal from a calendar perspective.

By that I mean that October was not a typical October. The activity frustrated in April and May meant more volume in other months in terms of sales agreed. The stamp holiday has also brought forwards some activity…..the difficulty is knowing how much. So year on year figures need approaching with a pinch of salt. However we got a lesson that we’ve had many times in the past – when things look bleak, it isn’t always the case that markets (equities, housing or whatever) follow the likely economic output. In fact historically there is very little correlation at all, in real time.

We’ve had a definite steer that the stamp holiday won’t be extended. However, we had a definite steer that furlough wouldn’t be extended and then since then it has been extended twice. The last thing the government will want is a morbid housing market at the end of a challenging Q1.

I suspect a reform rather than an extension, but a slow phasing back in would make the most sense.

Sales agreed in February will be our first really interesting metric as will auction activity in March – thinking of likely timescales.

The larger spectre is unemployment. Latest forecasts were showing around 7.5% at the end of H1 2021, but these have been revised down significantly from 11% or so. With 2.2m left on furlough and a large slug of those in hospitality/leisure, and some others “tactically” furloughed to save Xmas wages……how bad is it still? Certainly not the predicted cliff from October.

The cynic in me wonders if the last minute furlough extension was deliberate. Trimmed off some staff in August – October because holding staff with no prospect of re-employment was costly… this extension is more “genuine” furlough than before……just being cynical!

Unemployment will still have to rise but I think we will be “under” 7.5% not “over”.

Boris of course delivered his surprise Xmas gift which didn’t surprise anyone……the brexit deal is done and no deal has no material risk. This should be well received by business despite the hard journey to get here.

One big remaining factor is tax. Many are expecting big rises but I am not. The government want the economy to inflate whilst doing some voter virtue signalling – so those with assets will not escape but I don’t think the expected rises are coming in 2021, we will know on March 2nd. The government will want to inflate the debt away so the one thing to expect next year is inflation. Real terms pay cuts will be on us and that will surpress rents and rent rises, fighting against the tide of inflationary factors in the rental world.

In the budget I expect more rates holidays or forgiveness for businesses, potentially lower VAT but not at 5% for beleaguered sectors, and it is worth keeping an eye on the US who are delivering a further $900bn of stimulus via cheques (helicopter money) and stronger unemployment benefits.

The message there is that they know covid isn’t over yet so expect similar moves from the UK as 95% of the country reaches tier 4 lockdown in January……

I’ve said it most weeks it seems but the well organised and fundamentally sound investors will survive and thrive in 2021. There will be lots of opportunities around – people want to transact. Provide solutions and you can pick your spots……good luck and happy new year!!