The arrival of the latest set of market statistics for Perth and Kinross from the Registers of Scotland (RoS) brings into sharp focus just how much has changed in a very short period of time. The stats cover the quarter up until the end of March, in other words the period prior to the main Covid-19 crisis, and it is more than a little disconcerting to look back and remember the way in which we were thinking then and the way we are having to think now.
It is no exaggeration to say that the circumstances we find ourselves in are unique and have never been experienced before. Market activity literally stopped at the end of March and, as I write, looks set to be in lockdown for a good few weeks yet. Now, of course, the key question is what does the future hold?
There will, of course, be a fall out as a result of the virus with many people’s circumstances deeply affected. Beyond the sadness of people’s losses the crisis has already resulted in reduced incomes, job losses and uncertainty. It is therefore very likely that demand will soften in the short term. However, some sources are now predicting a drop in values as much as 35%. Personally, I can see no logical reason for this extreme scenario.
Before we went into the Corona crisis – as shown by the latest RoS figures – the market was characterised by a supply shortage resulting in an 8% reduction in the volume of sales compared to the same period the year before.
The first quarter of 2020 was a sellers’ market and, in many cases, we were seeing negotiated sales at Home Report values or above. Closing dates were also becoming more commonplace. Any drop in demand caused by Corona Virus may partly act to balance out the existing lack of supply particularly in the market hot spots. This may encourage more sellers to come to the market if they can achieve their desired move.
Mortgage rates remain at an all-time low. This means that the cost of owning a house is still low in comparison to rent. This should continue to generate demand in properties that still offer fair value. Lenders have available funds and have an appetite to expand their lending books.
For me, it looks most likely therefore that any drop will be short term and that, after the current period of inactivity, I would anticipate a strong recovery. Values may not be significantly affected and may recover to previous levels quickly.
Of course, the Government has an important part to play. If it takes too long to allow the market to get back to business then this will mean a more prolonged downturn.
If the market can start to function in some form in May, I believe we will see the recovery this year. If, however the current lockdown continues into July this will change the position markedly. Overall, the deeper the impact, the longer the recovery time. Government strategies suggested such as LBTT(stamp duty) holidays or reductions could also help accelerate the recovery.
It is worth noting that the current crisis is very different from the recession that started in 2008/2009. This was caused by an underlying credit issue that squeezed available finance resulting in a devaluation of the market and property stocks. After a steep initial drop the market was stagnant for a prolonged period and it wasn’t until 2014 that we started to see some real signs of recovery. The Corona Virus crisis is totally different. Finance is available and at historically low levels. This is one of the key factors that will stimulate a recovery and points towards more of a V shaped recovery rather than a more drawn out alternative.
In summary, in my opinion, all the indicators are that the market will bounce back reasonably quickly so long as the Government’s exit strategy works.
That said, whatever the new normal will look like, you can rest assured that everyone at G+S will be there to provide the help, support and information you need to move forward as strongly as possible.
