“As we enter a new phase of uncertainty following the UK’s vote to leave the EU, it is very likely people will put big decisions on hold, and one of the biggest decisions people ever make is a house purchase. This means we can expect short term transaction volumes to decrease and to stay deflated for some time – perhaps until next spring. While we may not notice much of a change over summer, given the traditional hiatus in the housing market, the usual pick up in autumn may not materialise.
“However, given there is always going to be underlying demand for housing, and assuming there is some economic stabilisation in the next six to nine months, we can expect more normality to return in the spring, subject to underlying confidence and conditions. London demand may be hit for longer, albeit it will recover given its ‘global city’ status in or out of the EU.
“There will be a tale of two economies when it comes to house prices – central London and the rest of the market. Whilst volumes will drop we do not expect to see material price discounting in the regions and outer London – asking prices will naturally soften but likely in low single digits. The low level of debt in the house builders will mean they will not need to discount to weather the storm, unlike the position in 2008. In central London, the softening that has already occurred will continue and asking prices will continue to drop particularly above £1200 per square foot. Key to how long and deep this lasts will be foreign exchange – a material devaluation will rapidly make London look a very affordable global city again for international investors and stabilise prices once foreign exchange volatility slows.”
“Looking at supply, medium term things could be problematic - given that sites take many years to develop, any mothballing and reduction in supply by house builders will impact and make the underlying demand/supply imbalance worse. Added to that, any labour constraints brought in could reduce the availability of foreign workers on construction sites – currently a relatively large source of labour for the industry – again slowing the rate of build and therefore supply.”
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