A year of two halves

After falling in May and June, house prices shrugged off the collapse in GDP and the decline in employment to surge in the second half of the year. (See Chart 1.) As a result, annual house price growth in Q4 is on track to be just over 6%, the strongest since 2014. But we suspect that house prices will give up most of their 2020 gains in 2021, as the end of the stamp duty holiday weighs on demand and the end of the furlough scheme boosts supply through a modest rise in forced sales. (See here.) That said, the main risk to our forecast now appears to be on the upside from more generous policy support than we currently assume. The furlough scheme has just been extended to April and could be prolonged further. Given we expect GDP to rebound quickly from Q2 2021, that would reduce the rise in unemployment, and in turn the drop in house prices, we expect next year.