House prices could collapse by as much as 20% amid coronavirus crisis
- The stock market is already pricing in a 12 per cent fall in house prices
- That would knock £28,000 off the average £234,700 selling price
- A fall of 20 per cent would knock £46,900 off average prices
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House prices could collapse by 20 per cent this year in a worst case scenario for the economy, it was claimed last night.
The stock market is already pricing in a 12 per cent fall in house prices, according to analysts at markets gurus Jefferies.
That would knock £28,000 off the average £234,700 selling price and hammer families who were preparing to move home, potentially trapping some in negative equity.
House prices: A fall of 20 per cent would knock £46,900 off average prices
If the Government’s efforts to prop up the economy fail, a fall of 20 per cent would knock £46,900 off average prices. In better news, prices would rise by 5 per cent a year for the next three years as the economy recovers, Jefferies forecasts showed.
Just four weeks ago, the Office for National Statistics published data showing house prices rising in every region for the first time in almost two years. But now experts think coronavirus will bring the ‘Boris Bounce’ crashing back down to earth this summer.
Experts said stock markets had begun pricing in a steep drop in home values as buyers shelve viewings and put off plans to move.
However, analysts think housebuilder shares – which have typically fallen by about half in a month as a sharp UK recession has become increasingly inevitable – now offer a ‘huge opportunity’ for investors. This is because many firms are still sitting on giant piles of cash that could prop up their balance sheets during the crisis.
George Buckley, economist at Nomura, said: ‘People will not be looking for a new home at this point. They will want to be staying safe in their own home. So anyone wanting to move will probably be desperate and take a hit on the price to get a sale through.’
Anthony Codling, chief executive of property firm Twindig, said home transactions could fall from 66,000 a month to 26,400. He added: ‘You’ve got to be desperate to move, so transactions could fall more than during the credit crunch when they fell by more than 60 per cent. That’s going to be a big problem for estate agents.’
The fallout from the coronavirus pandemic is expected to knock revenues by up to 15 per cent at the FTSE 100 property giants Persimmon, Berkeley Group, Barratt Homes and Taylor Wimpey. But the experts at Jefferies said the firms remained a solid investment because they had stockpiled cash.
Housebuilders are expected to pull back on construction in a bid to keep profits up. Banking sources said mid-sized property firms had stopped laying foundations for large buildings.
The fallout from the coronavirus pandemic is expected to knock revenues by up to 15 per cent at the FTSE 100 property giants Persimmon, Berkeley Group, Barratt and Taylor Wimpey
Jefferies expects home completions from listed property firms to decline by 15 per cent in 2020. But it thinks housebuilders will maintain their bumper dividends of recent months and weather the storm by drawing on cash reserves.
‘We believe recent share price moves have brought significant opportunity,’ its note said. ‘The balance sheets remain robust and as such we have largely assumed no change in dividend policy.’
Clyde Lewis, housing analyst at Peel Hunt, said: ‘People will be backing away from making big decisions now and that means developers will slow down building. The quoted housebuilders are in a strong position.
‘They are cash-rich, so they don’t have to chase sales volumes, which will decline by 50 per cent at least during the second quarter.’
Persimmon’s share price stood at £16.79 at the close on Friday, down from £32.60 a month prior. Over the month, Berkeley Group’s share price has fallen from £53.50 to £33.95, Barratt from £8.60p to £4.09p and Taylor Wimpey from £2.30p to £1.17p.