Winter Market BriefingWhen the pandemic first emerged, many commentators were expecting a market downturn, however, in the wake of restrictions on moving being lifted in mid-2020, there was an explosion of activity and rising house prices. This human response to being confined, giving time to reflect, and changes to working patterns, has shifted households’ wants and needs.
Looking at how house prices have changed from before the pandemic in 2019 to now, the strongest growth has been in more rural locations that were once seen as idyllic but too far from centres of employment. Areas such as the Scottish Borders and Ayrshire were typically more affordable for these reasons, but values have been driving up in these areas as people have taken advantage of working from home to seek lifestyle and space.
Over the past two years, demand for quality space and lifestyle has resulted in the average price of a family home in Scotland rising over 13%, compared to 9% for apartments.
During 2020 & 2021, Rettie & Co. have seen demand consistently 25-50% higher than pre-pandemic levels, while new supply has remained relatively flat.
Looking ahead, Rettie & Co. are now forecasting positive price growth over 2022, but at lower levels (2.5%). Transaction growth is also expected to level off as the 2022 progresses.
A key trend in the market has been the shift in buyer demand for more space. This may be driven by the need for greater internal space to accommodate living and working from home, or it may be the need for outdoor space or lifestyle space, or a combination of all three.
This hunt for space has been reflected in the change in average house prices over the past two years by house type. Family style house types have all reported double digit growth, with apartments recording high single digit growth.
While apartments have not recorded the same headline growth figures, there is still clearly demand for quality apartments and the desire for urban living remains strong, but such demand has been more selective.
For those looking to buy in recent years, there has been a strong sense of competition in the market and limited supply. Analysis of new listings coming to the market against new applicants being registered by Rettie & Co. highlights this imbalance. Using Edinburgh as a case study, in Spring 2020, the market started with rising demand and supply similar to the preceding year. Then, the pandemic closed the market.
When lockdown restrictions were lifted, there was a major spike in demand, dwarfing the levels of new supply. Supply has consistently lagged demand being registered over the last 18 months. This demand has supported a seller’s market and rising prices.
The pandemic has stimulated considerable house price growth. Over the course of 2021, average house price growth has been around double digits for the first time since the market boom of the early to mid-Noughties.
Looking ahead to 2022, the market is likely to soften as rising inflation (now over 5%) and interest rate rises should curb spending and mortgage availability and affordability over the next year. However, there appears to be life in the 2020- 21 surge yet and it may be until the middle next year before economic headwinds push the housing market back. We expect the rate of house price growth to drop back to the low digits, with a current central estimate of 2.5% over 2022. Transactions growth are also expected to level off, however, we expect house prices to rise by 15% by 2025 due to the continuing supply demand imbalance.