|Halifax House Price Index – July 2020|
|Average Price||Monthly Change||Quarterly Change||Annual Change|
|Q1 Growth||Q2 Growth||BoE Interest Rate|
July saw a significant rebound from the continual fall in house prices seen in the four months preceding. Average prices grew by 1.6% on a month-on-month basis, though prices still sat 0.2% lower in Q3 than in Q2, suggesting that this return to positive growth is not quite enough to wipe out the losses brought about by the pandemic and lockdown measures. From a year-on-year standpoint, house prices are now 3.8% higher after an explosive month of growth.
With regard to macroeconomic performance, Q2 data showed the sharpest quarterly drop in economic activity since records began. So severe was the contraction that roughly 9 years’ progress was wiped out in just three months.
An Ailing Macroeconomy?
While this doesn’t come as a surprise due to the fact that the pandemic had largely eliminated peoples’ ability to transact, it should also be taken with a grain of salt. The effects of Covid-19 on the economy can be considered an ‘endogenous shock’, i.e. originating outside of the economy itself. In spite of evidence of pre-Covid economic weakness in the UK suggesting that we might have seen recessionary activity soon anyway, it’s clear that this precipitous drop was not caused by a mechanical failure within the economy, as was the case in 2008/9.
That said, the longer that commercial activity is hampered by the virus, the more that structural economic damage is done. This is showing itself in the raft of retail brands filing for insolvency for example, leaving a permanent mark on the economic/commercial landscape of the UK. Analysts are already predicting a strong Q3 performance from the UK economy, given that consumer spending was observed far above the same time a year ago. HM Treasury shows the median growth prediction to be around 14% for the current quarter, which would be a significant, record-breaking boost to the overall yearly growth figure.
Considering Lag Times
Previous monthly updates have pointed to the potential effects of a ‘post-lock-down bounce’ and, of course, the stamp duty cut, which is forecast to save buyers up to £15,000 off ticket prices in parts of the UK. Underwhelming data, especially in June, appeared to show a timidity among consumers and home-buyers when it came to deploying cash in the market. That said, it is clear that July’s data shows this playing out, with the data now capturing the demand that was ultimately put on hold throughout the restrictions on movement. Some economists appear to see this momentum continuing at least through September.
Threats to Re-balancing
It’s important to remember that much of this resurgence can be attributed to policy measures that are temporary in nature. Programs such as the furlough scheme, ‘eat out to help out’ and the stamp duty cut have effectively put money in consumers’ pockets, in addition to any pent-up demand due to lock-down measures. However, as these schemes are lifted, redundancies will undoubtedly rise and consumer incomes will see a sustained attrition. This has led many to question how sustainable a recovery will be both across the housing market and the wider economy, as belt tightening consensus will undoubtedly become dominant. A lot of estimates are also failing to account for the likelihood of a second wave of the virus this winter, the severity of which will undoubtedly determine economic performance as the year closes out.
Yielders does not provide any advice in relation to investments and you must rely on your own due diligence before investing. Investments in property and unlisted shares carry risk and you may not receive the anticipated returns and your capital may be at risk.