Property

Four real estate predictions for 2022 – Show House

After a new variant of Covid spreads towards the end of 2021, Tom Bill, UK head of residential research at Knight Frank, offers four things to consider in the UK property market as confusion begins to mount dispel.

The combination of the Christmas holidays and an Omicron wave has been disorienting.

If it had not been for an Omicron variant, we could predict with a high degree of confidence that the supply in the UK property market would increase in early 2022. Sellers have agitated in recent months as frenzied conditions in the stamp duty holidays become a distant memory.

The arrival of Omicron does not mean they will now back down, but the assumption of an increase in enrollments is slightly less certain. Supply is one of four useful metrics to assess the trajectory of the UK property market this year, as we explain below.

Gravity-defying price growth

Compared to this first benchmark, sellers were undoubtedly more and more active before Christmas. The number of UK sell instructions in November and December rose 7% from the 2015-2019 average, according to data from Knight Frank. Market valuations, a leading indicator of supply, rose 10%.

It appeared that unusually strong demand levels would be better offset by supply in the first months of 2022, putting downward pressure on the gravity-defying price growth we’ve seen in recent months.

Does it still seem likely?

Omicron’s trajectory is uncertain and we may become more familiar with the end of the Greek alphabet if new variants emerge, but with each encouraging piece of data about hospitals’ ability to cope with the current wave, the answer looks more like a ‘Yes’.

Indeed, the path of the pandemic is the second thing to watch this year – perhaps closer than anything else.

Likelihood of locking

The impact of Covid-19 on the UK housing market has mainly become a matter of sentiment, as the anti-climate end of the leave program has shown.

Buyers and sellers need the confidence to plan without the prospect of a sudden change in direction, and that sense of certainty may start to materialize in the weeks to come.

If this happens, it will initially benefit those who can act quickly – we already explored the benefits of listing in January. For more discretionary buyers and sellers, spring should remain the focus.

Regardless of the timing, the strength of demand remains unwavering for now. The number of potential new buyers in the UK in the last two months of 2021 was 63% above average between 2015 and 2019.

However, the third key thing to consider in 2022 is borrowing costs, which could cause demand to start unraveling later this year.

The normalization of interest rates is a sign that the economy is strengthening, but as mortgage rates also normalize, it will inevitably dampen demand and price growth. However, it should be remembered that the current base rate of 0.25% is lower than the level of 0.75% in March 2020, which was still considered historically low at the time.

A hit on the brakes

As rates move in one direction, they are unlikely to rise precipitously, meaning the short-term effect will be more like a hit on the brakes.

However, what is different by the start of 2020 is inflation, which some economists predict to reach 7% this year. As the cost of living rises, this will further dampen demand and house prices and increase pressure on the Bank of England to raise rates faster if inflationary pressures start to feel less transient.

A sign of what financial markets expect to happen in borrowing costs, the five-year swap rate last week was the highest since November 2018.

The latest issue that will impact the UK residential property market this year, especially in prime London and the Home Counties, is the return of international travel.

Heathrow’s passenger count in November was down 51% from the same month in 2019, although this compares to an equivalent drop of 90% in May.

Buyers abroad

The numbers are gradually rising and the government recently relaxed the rules on testing for international travel and ended what has become an increasingly futile ban on arrivals from countries like South Africa as a result. of the Omicron variant.

Both of these measures have been well received by the travel industry, but, as we have already explored, the relaxation of UK travel rules has yet to have a normal effect on property buyers in abroad.

Seasonality and the erratic path of recovery in different parts of the world will continue to have an impact and may mean that international demand will only recover more noticeably in the second quarter of this year, barring further unforeseen variations.

In summary, provided you don’t stray too far from the current path on all four measures, the UK property market should, somewhat counterintuitively for the second year in a row, have a solid 12 months.

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