The acid test: In the UK’s consumer-oriented economy, developments in the housing market matter a lot. The market is a petri dish for underlying household confidence. Demand for a long-lived asset like a home usually correlates well with spending on big tick items and durable goods. When the closely watched RICS housing market survey slumped in April and May, we warned of the potential trouble ahead for consumers. A major correction in house prices, along with the ongoing rise in unemployment, would damage household net wealth and further weaken the impetus to spend. But the sharp rebound in the same survey for June seems to partly remove this risk for now.

Solid uptick in June: The headline balance, which measures the 3-month change in house prices, jumped from -32% to -15% (beating consensus of -25%). It signals that the market turned up sharply in June (Chart 1). Data on new instructions, new buyer enquiries and newly agreed sales (Chart 2) as well as forward looking components on sales and price expectations for the next three months (Chart 3) point to a V-shaped rebound following the April and May plunge.

Cautious optimism: The upsurge in activity probably reflects a genuine rebound plus a temporary flurry of activity to clear a backlog of transactions that accumulated during the lockdown. The data for July may thus show a little dip. Looking further out, the policies announced yesterday to support employment and the housing market – including a major cut to stamp duty – can help to sustain the recovery. Given the serious risks ahead, including a major second virus wave and renewed lockdowns as well as a messy exit from the single market, we remain cautious in our assessment of the near-term outlook. However, the strong rebound in housing activity, along with other timely data such as those on footfall and port traffic, adds to the evidence that the underlying economy is, so far, recovering well from the Covid-19 mega recession.

Chart 1

Chart 2

Chart 3

Kallum Pickering

Senior Economist

Phone +44 203 465 2672
Mobile +44 791 710 6575

For Berenberg the protection of your data has always been a top priority. Please find information on the processing of personal data here.

Any e-mail message (including any attachment) sent by Berenberg, any of its subsidiaries or any of their employees is strictly confidential and may contain information that is privileged or exempt from disclosure under applicable law. If you have received such message(s) by mistake please notify the sender by return e-mail. We ask you to delete that message (including any attachments) thereafter from your system. Any unauthorised use or dissemination of that message in whole or in part (including any attachment) is strictly prohibited. Please also note that any legally binding representation needs to be signed by two authorised signatories. Therefore we do not send legally binding representations via e-mail. Furthermore we do not accept any legally binding representation and/or instruction(s) via e-mail. In the event of any technical difficulty with any e-mails received from us, please contact the sender or info@berenberg.com. Deutscher disclaimer.