The Stamp Duty holiday has arguably been the housing-market equivalent of the January sales. It got people out and spending at a time when they might otherwise have stayed at home and saved. Like the January sales, however, it must come to an end (barring any major surprises). So what will happen to the housing market then?
The case for more growth
The Stamp Duty holiday benefitted onward-movers (and investors). It didn’t really benefit first-time buyers. In fact, it arguably disadvantaged them. First-time buyers already benefited from a Stamp Duty discount, albeit a capped one. The Stamp Duty holiday put them (back) on an even playing field with people who were likely to be on a stronger financial footing than them.
For example, onward-movers would have had the opportunity to build up equity in their home. Investors, meanwhile, by definition, are people who have money they can set aside for the purpose of making more money. It is, therefore, possible that a lot of the house-price growth seen over the last year or so has actually been an indirect result of the Stamp Duty holiday.
In other words, the Stamp Duty holiday may have encouraged people to move on sooner rather than later. It might also have encouraged them to look at larger properties. For example, some people might have wanted more space for children (indoors and outdoors). Some may have wanted working-from-home space. Some may even have wanted both.
Further growth may, therefore, come from first-time buyers returning to the market once their Stamp Duty advantage returns. If it does, it will be interesting to see what type of properties they buy and where.
The case for flatlining
There are two good reasons for thinking that house prices might flatline. The first is that there has been so much activity in the housing market since last July. It’s therefore entirely reasonable to wonder how much energy there can be left in the housing market. Quite simply, it may have run out of steam naturally and hence may need some time to cool off.
The second is that the housing market can only grow if people can afford to pay higher prices for homes. This depends on their income and, one way or another, this generally depends on the state of the economy. Even people on guaranteed fixed incomes (e.g. pensioners) are impacted by the state of the economy as it influences prices and hence their disposable income.
Technically, the UK economy is growing. Realistically, however, the growth could be more accurately described as a reboot. In other words, the UK economy has spent over a year in various stages of lockdown. It’s now getting back to where it was rather than forging ahead.
This begs the question of how much further growth, if any, the housing market can sustain before it becomes unaffordable. Help-to-Buy schemes may be a consideration here. That said, these ultimately depend on the government’s ability to finance them. This ultimately depends on the state of the economy (and hence tax revenues).
The case for house-price falls
What goes up doesn’t necessarily have to come down. If it’s to stay up, however, it needs something to support it. In the case of the housing market that is often mortgage payments.
If homeowners cannot afford their mortgage payments, then, one way or another, their home will be sold. If buyers cannot afford mortgage payments then they cannot buy. This means that either homes go unsold or sellers lower their prices until buyers can afford them. In the real world, it may mean a combination of both.
There is a difference between house-price falls and a market crash. House-price falls can be a case of a slow slide to a gentle landing and then a climb back up again. They do not have to be sudden drops. Either way, however, house prices can and do fall if they rise to unsustainable levels.
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