Q. One of the key questions for homeowners, buyers and sellers at present is what will happen to house prices as a result of the coronavirus lockdown?
Richard Donnell: The short answer is that it's too early to tell. The housing market has effectively gone into suspended animation and there is little if any new pricing information available.
Much will become clearer once we can assess the economic impact of the lockdown.
Q. What effect is the coronavirus pandemic currently having on the housing market?
RD: What we can see is that COVID-19 is affecting activity in the housing market - the number of homes being bought and sold.
Our own data shows buyer demand, or demand from sales 'applicants', has dropped 70% since March 7th, the date when concerns over the virus really started to impact consumer activity. But we expect demand to pick up again once physical restrictions are eased.
Q. Do past trends give any indication of what might happen to house prices?
RD: What history tells us is that house prices tend to fall when the economy shrinks as a result of falling output. This has a knock-on impact for unemployment or higher borrowing costs - all things that can result in more people forced to sell.
Thus, the scale of the impact on house prices depends upon the scale of the economic impact from coronavirus.
Our chart below shows annual house price growth since 1970 with periods of economic recession highlighted. House price growth has had some crazy highs and rather fewer lows in the last 50 years. It is a rather positive history and shows price growth in 'nominal terms' - years with high underlying levels of consumer price inflation can support the headline numbers for price growth.
But the economic dynamics are different now with much lower consumer price inflation, so lower rates of nominal house price growth compared to the long run.
What it does show is that periods of price falls tend to be relatively short and sharp, although when a full-blown recession his they can become years.
Q. So what about this time?
RD: Mortgage interest rates at their lowest level ever, mortgage payment holidays and government support for business means we are unlikely to see a big increase in forced sellers (who would have to accept lower prices) in the near term.
As such, we do not expect any big movement in house prices during the coronavirus lockdown. Beyond that, it depends on how long the market remains disrupted and any longer-lasting economic impact.
Q. What’s the current outlook for the housing market?
RD: This latest shock to the housing market is unprecedented. Only once the lockdown is lifted will we start to get any sense of the impact on pricing. Most important will be how quickly sales agreed start to rise and how the pricing of new property listed for sale compares to earlier in the year.
Our current expectation is that the government measures support business, and that pricing levels will largely pick up from where they left off at the start of March.
Levels of house price growth are already low by long run standards - 2% in 2019 - so any prolonged downward pressure on prices, even modest, could push annual growth into single digit negative territory.
But this may be more a function of far fewer sales price points and more price volatility than any short-term falls in demand.
Q. Can homeowners cope with the impact of falling house prices?
RD: One piece of positive news is that there is a huge amount of so-called 'housing equity' to absorb the impact of any house price falls.
While there is £1,100 billion of outstanding mortgages in the UK, the total value of all UK homes is more than five times higher, according to the Hometrack valuation model which powers our Zoopla home valuations.
This is a pretty large cushion to absorb any decline in prices.
Tougher mortgage regulations mean most people taking new mortgages in recent years have put in 15%+ deposits so the likelihood of negative equity is low even if prices falls were larger than expected.
Richard, many thanks.
We know you and the team will be keeping a close eye on the data as the situation evolves.