The current resurgence in the housing market is likely to be short-lived according to the Centre for Economics and Business Research, which is forecasting a 14 per cent drop in house prices in 2021.
The think tank says the housing market “defied gravity” in August, with indices like Halifax putting prices at record highs.
It says these trends are “at odds with the wider economic turmoil”.
The CEBR says that the stamp duty cut is one factor driving this apparent contradiction and it expects that the measure will result in a 1.2 per cent increase in prices and a 6 per cent rise in transactions compared with what it would have expected had the policy not been in place.
It says: “The temporary nature of the tax reduction means that the policy’s short term effects could be even more dramatic, as people rush to complete transactions before the return to the previous stamp duty regime at the end of March 2021.”
Pent-up demand as a result of transactions being put on hold during lockdown is another factor behind the current housing market momentum it says.
Between March and June, 246,000 home sales completed in the UK, but had transactions continued at monthly average volumes seen between September 2019 and February 2020, the total would have been 394,000.
That suggests that 150,000 purchases were put on hold as a result of the pandemic.
Also, figures from the Royal Institution of Chartered Surveyors suggest that buyers have returned to the market more quickly than sellers, which has further boosted prices.
Meanwhile, the CEBR points to other measures that are currently propping up the market.
Government action has drastically curtailed both evictions by landlords and repossessions by mortgage lenders
According to the Ministry of Justice, there were just 161 mortgage repossession claims issued in Q2.
During a typical quarter, mortgage repossession claims are issued on around 6,000 properties, with the number of properties taken into possession averaging around 2,000 per quarter, the CEBR says.
“The suspension of forced sales and repossessions will have had some supply-side impacts on the overall housing market throughout the second and third quarters, boosting prices as well,” it adds.
The think tank also argues that housing indices based on mortgage lender data may be distorting the picture.
Both Halifax and Nationwide’s indices suggest prices have reached a record high.
But the CEBR says: “We think it likely that the structure of the housing market has shifted because of the differential impact of the lockdown on incomes.
“It appears from the average earnings data that low income workers – particularly in the gig economy – have had their incomes much more badly affected by the coronavirus crisis than many of the more comfortably off, at least so far.
“As a result of this, housing activity in the summer months is likely to have been skewed towards higher value properties distorting some of the unofficial data.”
The think tank says the Coronavirus Job Retention Scheme has also been sustaining incomes, which has in turn propped up housing market demand and elevated house prices to levels that are unlikely to be maintained when it comes to an end.
In mid August 9.6 million people were furloughed under the scheme, equating to nearly a third of the total number of people in employment in the UK.
The furlough scheme is set to end on October 31, along with the ban on mortgage possessions, while stamp duty will revert to its original level in April 2021.
Furthermore, the CEBR expects pent-up demand from lockdown to work its way out of the system in the coming weeks.
It concludes: “Our analysis suggests that prices will start to fall significantly towards the end of the year and the first half of 2021 (though there might be a short spike as the stamp duty reduction comes to an end), with average house prices forecast to be 13.8 per cent lower in 2021 than in 2020.”
