What will happen to the housing market in 2021
In our blog post in October 2020, we talked about how house prices were on the rise due to the market being stimulated by four main factors:
- The stamp duty holiday
- A bottleneck of transactions as a result of lockdown
- Ultra-low interest rates
- The changing requirements of homeowners and tenants.
Looking ahead for 2021, when it comes to what house prices will do this year, opinions seem to be divided. For example, some property professionals suggest prices will continue to rise, whilst others believe they’ll stay the same or fall:
- Rightmove forecasts that house prices will rise by 4%in 2021.
- Zoopla predicts annual house price growth will reach 5%in February, before slowing to 1% by the end of 2021.
- Halifax says house prices will fall by between 2% and 5%this year.
- The estate agents Savills and Hamptons both believe house prices will stay the samein 2021.
- Chesterton’s predicts a 5% increaseand Knight Frank a 1% rise.
- The Centre for Economics and Business Research (CEBR) predicts house prices could fall by 5%.
Our opinion on the 2021 housing market
From our point of view, whilst house prices are unlikely to rise as much this year as in 2020, we don’t think they’re going to crash.
The combination of government stimulus, a change in mentality towards where people want to live and a low interest environment helped create a house price boom that many didn’t see coming back in March 2020.
Logically house prices this year should not keep rising at the rate they have. At some point the government stimulus, including the stamp duty holiday, is going to come to an end, furlough will end and unemployment will rise. It may also be that people’s mentality towards working at home changes and demand for moving further away from cities softens substantially. Ultimately, we feel the level of activity seen in the market in 2020 is going to cool off. Is the property market going to crash? No, we don’t believe so.
Property is a great hedge for inflation and with interest rates staying below rates of inflation in the medium term, mortgage holders will continue to have manageable mortgages. When the housing market is pressure, it tends to grind to a halt and transaction levels dry up. Whilst interest rates remain low sellers have more flexibility to hold on stubbornly for the ‘right’ price. This protects some of the market and stops house prices falling off a cliff. Those who have to complete transactions (for example, due to death, destitution or divorce) will obviously still have an impact on the market, but to a lesser effect.
We see little material house price growth throughout 2021 in contrast to 2020, especially in the latter half of the year as we come out of lockdown and the government stimulus gets withdrawn.
What does this mean for investors?
More than ever, it is a reminder to invest for the long term – rises and falls in the market are to be expected and prepared for.
Over time these fluctuations are ironed out and, more often than not, provide a good return. With inflation set to rise due to the supply of money in the economy, it’s as important as ever to ensure your money is protected and investing in property is one way to hedge against this inflation rise.
As touched on in our previous blog, our focus over the last 18 months has been giving our investors more access to investments in the holiday home investment space, working across Cornwall, the Lake District and now The Cotswolds.
With a boom set to happen in the staycation market due to the ongoing Covid crisis, these investments are well placed to enjoy great returns over the medium term.
If you are interested in investing in property and would like our help to find the right one for you and your personal circumstances, don’t hesitate to get in contact today.