Not the New Normal
As we emerge from lockdown restrictions and start to enjoy sharing a meal indoors with friends, visiting family members and perhaps dreaming of a foreign holiday, or at least a staycation somewhere in Scotland, the housing market remains the primary preoccupation for many households. From the market closure to sales boom, the housing market appears to many to have been in a fever since last summer, however, there is more than just delirium behind the rising prices and strong demand. For many people, the compromises they have been making on locations and living space, for reasons of convenience and commutability, may now be increasingly unnecessary. Combine this with the fact the closure of the market built up demand, meaning that when transacting was allowed again there was a flood of activity. These factors have created a supply and demand imbalance, with more demand for desirable house types and locations than there is supply in the market. As 2021 has progressed, these conditions have created a highly competitive rising market, but despite all the fluctuations over the past 12 months, there has been a broadly similar value of property transacted when compared to the 12 months preceding the lockdown.
2021 has seen exceptional price growth, resulting in the average house price in Scotland in the past 12 months to Q1 2021 rising +8.5% year-on-year and exceeding £200k for the first time on record.
Mortgage lending has pointed to a strong recovery among home movers and first-time buyers from market lows in Q2 2020.
Supply in the market lags demand, with new applicants to Rettie & Co +40% up on pre-pandemic levels. New supply is only recently catching up with pre-pandemic levels
Supply & Demand
The past year saw the taps of housing supply switched off by lockdown restrictions, however, rather than dampen demand, the pandemic fostered a re-evaluation of living priorities and, for fortunate households, a period of enforced saving. The net result has been the building up of pressure and demand during lockdown, which has now sustained one the most buoyant periods of market activity since before the global financial crisis. Anecdotally, many agents with 20 to 30 years of experience cannot remember a time with so much demand in the market.
In March 2021, double digit annual price growth saw the average house price in Scotland exceed Â£200,000 for the first time. Against this backdrop, we expect strong positive growth for the rest of the year as we emerge from the pandemic before a cooling in 2022. Our central forecast for 2021 is +8% price growth in Scotland. This level of price growth will be the highest on record since 2007. Over the next 5 years, we forecast a 23% increase in the average house price as the initial pandemic price growth cools and returns to longer term trends. This pattern of five-year growth is higher than the previous five years, which have been around 11%.
Looking ahead, there remain many challenges in the market, including the shape of post Covid-19 recovery, the adjustment to Brexit and political and constitutional issues. This makes forecasting a difficult art and we will need to maintain a close eye on the key market drivers going forward.
Find your perfect home…Search new homes
Find your perfect home…Search new homes
Watch our market review video
Here we'll answer your FAQs
The past year saw the taps of housing supply switched off by lockdown restrictions, however, rather than dampen demand, the pandemic fostered a re-evaluation of living priorities and, for fortunate households, a period of enforced saving. The net result has been the building up of pressure and demand during lockdown, which has now sustained one the most buoyant periods of market activity since before the global financial crisis. Anecdotally, many agents with 20 to 30 years of experience cannot remember a time with so much demand in the market. This anecdotal evidence is supported by statistics. Using the Capital as a case study, with its a diversified market comprising dense flatted areas and suburban family markets, the disparity between supply and demand since lockdown is evident. In Figure 5, the number of new applicants registering for Edinburgh homes with Rettie & Co. is shown. From this, it is possible to see the seasonal patterns preceding the lockdown and the low level of new applicants that resulted from the restrictions. However, what is clearly visible is the rebound and weight of new applicants registering once restrictions were lifted, and how this persisted at higher than pre-lockdown levels through 2020 and in to 2021. Contrasting with the high demand that entered the market once restrictions were lifted has been subdued supply. Figure 6 shows that the number of new listings coming to the market in Edinburgh before the pandemic were lower than the previous year. Following the lockdown, there was an increase in supply as backlog of supply that would have come to the market during the busy Spring period was finally launched. As this backlog of supply eased new supply has settled back to more seasonal levels. When these two indicators are combined, we can more clearly see this contrast (see Figure 7). Using a 12-month rolling total of new applicants and new supply indexed to the 12 months preceding the pandemic, then this contrast is starkly shown within the Edinburgh market. While the pandemic initially subdued demand, by July new applicants in the previous 12 months were already higher than they had been pre-pandemic. This has continued to rise, meaning that in the year to April 2021, applicant levels were 47% higher than the 12 months before the first lockdown. By contrast, analysis of all properties listed in the Edinburgh market, shows that it has taken a year for supply within the market to recover to pre-pandemic levels, let alone keep pace with increased demand. This fundamental imbalance has been the cause of rising prices in the market over the past year.
A key issue over the past year has been the availability of the stock to meet the wave of demand that re-entered the market after lockdown restrictions were lifted. Based on the number of properties listed on the major portals in 2020, there was a -13% decrease in stock brought to the market compared to 2019. This drop in supply has been a key factor in driving up prices. Looking at the composition of homes coming to the market reveals much about the impact of the pandemic on different locations and buyer segments across Scotland. In 2020, the number of apartments that came to the market was down -11% on 2019 levels. The in-demand family market, popular with buyers looking to gain more space, saw the number of homes -14% lower than in 2019. Of the different property types, detached homes saw the greatest year-on-year decline in supply, down -16%. Areas which have a higher concentration of family housing, have seen the greatest fall in supply. This includes the likes of Midlothian, East Lothian and West Dunbartonshire. In contrast, the major dense urban settlements of Edinburgh and Glasgow had a lower drop in supply than more suburban and rural council areas at -9% and -10% respectively. Perhaps most notable in terms of supply, has been the difference across price brackets. The largest contraction in supply was in the volume market under £250k, which contacted -16%. Moving up the price range, the £250k to £500k band contracted by just -2% year-on-year. At the higher end of the prime and family market, between £500k and £750k, there was 6% increase year-on-year, while the £750k to £1m market saw 60+ more sales in 2020 vs 2019, equating to a +19% increase. This reflects the fact that more discretionary, higher equity and more financially secure households were empowered to move over the past year.