As I have discussed a number of times in my articles on the Southampton property market, this summer saw the Southampton property market do exactly the opposite of what was expected when Covid hit.
The Stamp Duty holiday added fuel to the pent-up demand for people to move to larger properties with extra rooms (to work from home) and gardens. This prompted a brief hiatus in the number of people selling and buying their home in Southampton over the last summer and autumn.
Yet, insecurity around rising unemployment, led to many mortgage companies becoming more cautious in the later months of summer, predominantly when lending to the self-employed or first-time buyers borrowing more than 85% of the value of the home (as they wouldn’t want to lend money to someone that could not afford a mortgage due to an insecure income or not having a job.
Back in the late spring, economists were predicting that UK unemployment would rise to a peak of 6.5% in Q3 2020, returning back to the 2019 levels (3.4%) by 2022.
By the end of 2020 nationally the unemployment rate stands at 6.3%. The toll Covid has had on people’s livelihoods has been massive, with an additional 1,434,515 people out of work, although it is important to note this unemployment rate is still lower than over the five years following the Credit Crunch years - 2008 to 2013.
So, with such a growth in unemployment and issues around Brexit, this may hold back the enthusiasm of many companies to take on more staff, reducing any rebound in employment. If unemployment remains high, this will influence perceptions of employment and personal/household financial security, which are the ultimate drivers for both house prices and whether people buy and sell.
5,280 Southampton people were unemployed a year ago,
today that stands at 11,890.
Looking at all the study papers on the topic, there is a link between unemployment and house prices, yet it’s not as strong as you would think. The larger factors are the demand and supply of property on the market and interest rates. Interestingly, in the past two recessions, the comparatively richer regions of London and South East house prices have been more sensitive to unemployment and house price changes than the rest of the UK, yet London and the South East also bounced back quicker and higher after the two recessions.
The concept behind this is that more expensive house prices in the South drop more than lower priced houses in the rest of the UK. Why? Because those more expensive regions have, by definition, more expensive house prices meaning the homeowners have higher mortgages, so if they become unemployed, their homes are more likely to be repossessed (because of the high mortgages), and consequently that reduces house prices in that area quicker because repossessed houses tend to sell much more cheaply compared to normal house sales.
The health of the Southampton property market in 2021 and beyond really depends on what happens to the economy as a whole and more specifically what is happening in the Southampton economy.
When we drill this down, though unemployment has hit different sectors of the economy to a lesser or greater extent. For example, for office workers, people who work in tech & sciences and the professional services, the impact on jobs has been comparatively mild, with many personnel able to work from home. Yet for others, such as those who work in the hospitality, leisure, retail, entertainment and catering industry, remote working is simply not an option and these have been hit the hardest.
Unfortunately, the industries mentioned above are the ones that tend to employ the younger generation, who invariably live in private rented accommodation, rather than own their own home. Being made redundant puts their dream of buying their first home back even further as they try and get themselves back on their feet by initially finding a job (let alone save for a deposit).
Housing markets will recover quickest in towns and cities, where jobs are in more resilient employment sectors.
For example, in London, unemployment jumped really quickly (and high) in 2009 with the Credit Crunch, yet came down just as quick in 2011, just as the property market in London started to take off, whilst in Southampton, it took a lot longer for unemployment to drop and the Southampton property market didn’t really start to get going until 2012.
If we have a determined economic contraction, with a lengthier and leisurely economic recovery, impeded by financial stress, that will lead to much higher unemployment in the 10% to 12% range in the summer of 2021. However, before I get to the initial question, I need to highlight another interesting fact, because …
what is particularly interesting is the increase in unemployment in Southampton amongst men has been higher than women, with a growth of 4.8 percentage points for men compared to 2.8 percentage points with women.
So, what is the prediction for the Southampton property market under the cloud of this growth in unemployment?
One massive redeeming factor that could save the Southampton property market is low interest rates. This will keep mortgage payments low, meaning repossessions should be kept to a minimum (therefore there shouldn’t be a flood of cheaply priced Southampton properties coming onto the market all at the same time and dragging Southampton house prices down with it, as it did in the previous two recessions of 2009 and 1989).
Yet, irrespective of the ultra-low interest rates, I still consider property prices in Southampton at Christmas 2021 won’t be much different from today, and in fact could be slightly lower.
This is because people have been paying top dollar in the last six months to secure their dream Southampton home, quite often spending the money they saved on Stamp Duty on the purchase price. When Stamp Duty Tax returns in April 2021 there will be less money to pay for the property ... thus Southampton property values will, by implication, be lower in a year’s time.
What about Southampton landlords and the rents?
Nationally, rents fell just over 2.3% between 2008 and 2010, following the Credit Crunch, while national house prices fell 15.9%. I anticipate Southampton rents will also remain comparatively robust in the coming months and years.
Rents are very much tied to the rise and fall of wage growth and I can’t see why this relationship shouldn’t continue. Rents will rise in Southampton by between 13% and 15% in the next five years, yet if property prices do rise in 2023/24, that means future rental yields will be marginally lower in 2023/4 comparative to today, especially as ultra-low interest rate expectations (according to the money markets) seem to be here to stay for a long time.
Therefore, something tells me there could be some interesting Southampton buy-to-let investment opportunities for Southampton investors willing to play the Southampton buy-to-let market long game.
To conclude, these are just my personal opinions. If you are a Southampton landlord looking for advice and an opinion on what to buy to maximise your returns, please don’t hesitate to contact me. If you are a Southampton homeowner, looking to buy or sell and need any advice or opinion on where the market is and where your Southampton home sits in the bigger Southampton property market picture – again feel free to drop me a line.
If you would like to pick my brains on the Southampton Property Market – Just drop me a line on social media or email me @ brian.linehan@belvoir.co.uk you can also call me on 023 8001 8222.
If you are looking for an agent that is well established, professional and communicative, then contact me to find out how we can get the best out of your investment property.
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