By MidLyfe Editor: A sure sign that something is soon to go wrong in Britain’s property market is that it is over-heating. The 1980s, 90s and 2000s had had them – now it appears, the 2020s is lining up nicely for another.

In the midst of the pandemic, the government decided to intervene in the housing market (again) and drop stamp duty as a way to prop up the market. It caused the right reaction and property sales rocketed. The decision to extend it lifted property sales and prices in March even further, the Royal Institution of Chartered Surveyors reported.

There’s a big problem. First up, the media has everyone thinking that demand has outstripped supply as buyers rushed back into the market to take advantage of the new tax relief. That bit is true, but it hides the reality of market dynamics.

In the RICS’s latest survey, a net balance of 42 per cent of agents cited an increase of new buyer enquiries in March, up from a flat reading in February and the highest figure since September last year. It went flat in February because most people believed they could not beat the stamp duty deadline. It was a very strong indicator that the market is currently driven by this one tax break.

The property market had noticeably slowed ahead of the March deadline, but now, the latest figures suggest buyers have rushed back to take advantage of the extension. However, the institution said that sellers had been less sensitive to the announcement: “The pace of the rise in new instructions didn’t match the rate of demand growth, leading to an increase in prices,” it noted.

What this actually means is that the first wave (no pun intended) of buyers absorbed much of the available stock. By the expected second wave, vendors could see there was very little out there to buy – so didn’t put their own properties on the market. The consequence was rising house prices due to supply and demand – but transactions will slow up very soon.

Some of the statistics

The seasonally adjusted estimate of UK residential transactions in February 2021 is 147,050, 48.5% higher than February 2020 and 23.0% higher than January 2021 (source).

Agreed sales in March rose sharply, with a net balance of 50 per cent of RICS respondents reporting an increase, the strongest reading since August last year (this also means that 50 per cent didn’t see the same).

However, only 29 per cent of surveyors reported that appraisals were up on the same period last year – meaning future instructions to put property on the market will be muted.

A net balance of 59 per cent said that prices had risen during the month and 42 per cent anticipate an increase in the near term. This means demand has outstripped supply – and the predictions only refer to ‘near-term’ i.e. the next few months.

The media are reporting that the property market has been resilient, but this is only the case because of direct financial support by the government.

Economists expect it to lose momentum when the stamp duty relief is withdrawn.

Martin Beck, at Oxford Economics, the consultancy, said: “The unexpected resilience of house prices last year sets 2021 up to be another year of rising values. But unsupportive macro factors and the end of the stamp duty holiday lead us to suspect some correction may not be long in coming. We see prices falling by 4 per cent to 5 per cent in 2022.”

There are two ways the property market can go. The government continues to meddle in the free market and falsely holds up property prices, which continue to rise. Or they could withdraw that assistance and property prices will fall in line with those ‘macro factors’ (lower economic activity once furlough ends, unemployment, tighter lending criteria, etc), which looks right now to be several years.