Why did the UK house prices correct in November after a 4-month rally?

• Property prices fell by 0.5 per cent in the first half of November after having been on an upturn for the past few months
• The market correction coincides with the second lockdown and is being haunted by the deteriorating jobs scenario and nearing of the expiry of stamp duty holiday

The bull run in the UK property prices seemed to have taken a breather after a four-month long period. The property website Rightmove’s Housing Price Index (HPI) recorded a deceleration of 0.5 per cent during November’s first fortnight, after registering a record growth in October when the house prices rose by a whopping 7.5 per cent, as per data from leading mortgage lender Halifax.

Industry observers are concerned that this could signal a recessionary trend in the housing market. On the contrary, Rightmove stated that this could be a correction that was long overdue. 

The property portal noted that several properties had become unrealistically high priced during the past few weeks. This happened due to the ongoing price momentum after the first lockdown got over. However, realty brokers now realize that these prices need to get subdued if their stocks are to be cleared.

Another reason cited is the rising unemployment rate because of the second lockdown.  Experts feel that more jobs could be lost which would delay the home buying decisions, pulling down the prices further. 

Rightmove’s HPI 

Unlike many industry observers, Rightmove does not believe that November’s dip signals an end to the price rally. It noted that while there were several contributing factors to this deceleration, the momentum carried on over the past four months was strong and the prices could see a revival soon. 

The property portal Rightmove lists nearly 95 per cent of houses for sale in the country. 

Tim Bannister, director of property data at Rightmove, said the drop in price levels seemed more like an overdue correction where sellers were quoting their prices realistically. 

It is to be noted that relatively expensive properties witnessed the highest price rise, which could be the reason for the lower sales turnover in that category. 

The momentum

Till the last week of October, the announcement of the second lockdown did not have any impact on the business activity levels in the housing sector. In fact, many experts felt that the market could see an expansion over the course of the next few months. 

While the pandemic has been the underlying factor guiding the transformative activity in the industry, the government stimulus measures also spurred the housing demand. 

The stamp duty holiday, which is set to continue till the end of March 2021, had been a major driving factor. Analysts noted that the second lockdown could accelerate activity as companies offer work from home facility, providing a fillip to home prices. 

At the same time, since the house owners and dealers are in a rush to clear stock before the deadline expires, the higher supply could have suppressed the prices temporarily. In the last ten years, it has been noted that the volume of transactions are highly sensitive to any change in the UK stamp duty structure. 

For instance, higher stamp duty rates were announced for secondhand properties in 2016. This immediately raised the sector’s transaction volumes from 110,000 to 175,000 before seeing a downward correction. Similarly, house price volatility was witnessed in 2010 and 2012 when stamp duties were altered across the UK. 

Besides, it is worth noting that house demand remained stable over the past 3 years, which coincided with the exchequer’s decision to not touch stamp duty in any way. Property brokers believed that housing demand and prices could fall after 31 March 2021.

Let us now take a closer look at the market performance of three prominent housing companies in UK over the past one month – Taylor Wimpey, Barratt Developments, and Redrow plc.

Taylor Wimpey plc

Source- Thomson Reuters (last one month)

As on 16 November, the shares of Taylor Wimpey plc (LON:TW) ended the trading day with a value of GBX 150.30 per share (2.19 PM GMT+1), gaining 1.04 per cent over the previous day.

Barratt Developments plc

Source- Thomson Reuters (Last one month)

On 16 November, the shares of Barratt Developments plc (LON: BDEV) closed at GBX 634.20 per share, gaining 2.39 per cent over the previous day’s close.

Redrow plc

Source- Thomson Reuters (last one month)

On 16 November, the shares of Redrow plc (LON: RDW) closed at GBX 541.50 per share, gaining  per 1.21 per cent over the previous day.