What does political upheaval mean for house prices?
Following the rather dramatic events of the last few days and hours we thought it might be helpful to look at what political turmoil does for house prices, and what we find might surprise you…
House prices largely indifferent to political turmoil
In the recent past, we have had several major events to help us assess how house prices may react to the unusual political events of the last few days.
The Brexit Referendum,
The 2017 General Election,
The 2019 General Election, and
The COVID-19 Pandemic
If history repeats itself, the house price growth may plateau whilst a new Prime Minister is found and perhaps until we have had an election to confirm the incoming PM's mandate to lead and govern our country. Many will forecast house price falls, but we expect house prices to neither move significantly up nor down whilst the current political storm calms down and the dust settles.
House prices and the Brexit Referendum
The Brexit Referendum in our view represented the biggest political and social upheaval in recent memory, as stock markets fell and political leaders queued up to resign, many were worried about what path house prices might take as we entered the unknown. The country was very finely split between those who thought Brexit was good news and those who did not, but all agreed the period of transition was probably going to be a white-knuckle ride.
House prices however seemed non-plussed by the whole affair, as we show in the graph below:
Overall house prices did very little in the nine months following the EU Brexit Referendum as the Brexit dust settled, once it had settled, house prices started to grow again.
House prices and the 2017 General Election
Following the June 2017 General Election, house prices plateaued once again, as the country waited to see how Brexit would bedone. After waiting for Brexit to get done for nine months, the housing market got bored with putting life on hold, and with no immediate sign that the economy was going to collapse, house prices started to rise again.
House prices and the 2019 General Election
Once it became clear that getting defining what Brexit was actually very difficult and therefore getting it done was harder still, house prices once again went on strike, and plateaued again. It seems that in the face of uncertainty if you don't know whether to turn left or to turn right, the best thing is to do nothing. It seems that house prices need a reason to move either up or down and without that reason, they take the path of least resistance and stay still.
House prices and the COVID-19 Pandemic
The COVID-19 Pandemic was the biggest shock to the UK economy not only since the Global Financial Crisis of 2007, but the biggest since records began.
The one thing no one was predicting was for house prices to go up. However, as noted above, house prices need a reason to go up and working from home coupled with enforced savings turned out to be a great recipe for house price growth, and to top it all, the Government kindly through in a very generous stamp duty holiday to ice the house price cake.
Housing transactions and political turmoil
The best lead indicator we have for housing transactions is mortgage approvals, a mortgage approved today typically leads to a housing transaction in 3-4 months' time.
The chart below shows how stable the level of mortgage approvals (a proxy for housing market activity) was in the lead-up to the Brexit Referendum up to the start of the COVID-19 pandemic.
At the risk of bruising politician's egos, the housing market data suggests that the level of housing market activity takes very little notice of what is going on in the Westminster bubble.