We now expect a shallower correction in house prices of 6%, down from 9%. With short supply persisting, our projected
house price falls should meet strong resistance.The regions have fared far better than expected. Covid lockdowns barely affected farming, and the ‘working from home’
trend is fuelling demand.The supply of homes has increased sharply. But we’re still falling short to the tune of 80,000 houses. The impact of
Covid-19 casts a long shadow over the construction industry into 2021. Commercial property looks likely to bear the
brunt of the adjustment.We warned of a correction early, but may be surprised.
In April, during the most intense shut down of economic activity in living memory, we issued a warning. We said the
lockdown was likely to cause a spike in unemployment to over 10%, and house prices would follow a similar, but inverted
path, falling 9%. At the time, we highlighted the very real risk of a much higher unemployment rate of 15%, and
therefore a much deeper correction in house prices. Since leaving lockdown earlier than expected, we’ve become more
optimistic. We now expect a modest decline in house prices of 6% (down from 9%).
We’re simply more comfortable that the downside risks are receding . And that’s a massive change in mindset. We continue
to expect the unemployment rate to creep towards 9%, but the impact on housing is likely to be reduced. The impact of
the lockdown is far greater than any other economic event since the Great Depression. But it lasted only 6 weeks. Unlike
previous recessions, the impact on the financial system was limited. Banks are lending, and the appetite to do so
remains strong. If all goes well (big if), a 5-6% dip in house prices would represent a very mild reaction to such a
dramatic economic upheaval.There are 3 strong foundations supporting the housing market:The housing market has a chronic shortage;Mortgage rates are at record lows;Population growth will continue, after the disruption.
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