The Office for National Statistics today published revised estimates showing that GDP has contracted by 19.8% in Quarter 2 (Apr to June) 2020, yet according to NAEA Propertymark, a trade body for estate agents, 13% of properties sold for more than the original asking price in August.
What is going on and what is likely to be the Bank of England’s next move?
The Office for National Statistics today published revised estimates showing we are indeed in a recession, although Quarter 2’s retraction is likely to be smaller than first thought at 19.8% compared to the initial estimate of a 20.4% drop. This confirmation is not particularly surprising given the lockdown’s impact on trade.
As some lockdown measures have been reintroduced this trend is likely to continue into Quarter 3’s figures.
A report by NAEA Propertymark, a trade body for estate agents states that 13% of properties sold for more than the original asking price in August. This is the highest number since November 2015.
According to Mark Hayward, Chief Executive of NAEA Propertymark:
…Last month, we witnessed a boom in the number of prospective buyers following the government’s announcement of a Stamp Duty holiday, and it seems this is increasing the level of competition in the property market. With the increase in the number of prospective buyers since this announcement, many buyers are clearly willing to pay over the asking price in order to secure their dream home.Housing Report, August 2020
Currency Printing And The Bank Of England’s Next Move!
Why are house prices going up? In part it is due to factors such as the lockdown and Government support for business e.g. backing for loans, but it is also down to Bank of England currency printing. As the currency supply is increased, the value of the currency goes down and therefore it makes sense to move capital into assets with a limited supply such as property.
The Bank of England is likely to continue to print more currency in future waves of QE. However, it also looks set to use another economic tool if things continue to get worse, negative interest rates!
Negative interest rates are where the central bank charge banks to store currency rather than pay them interest. The aim of doing this is to encourage banks to lend.
The Bank of England has played down the idea of using negative interest rates but announced in September that “it would take a detailed look at how negative interest rates might work in practice during the last three months of the year” according to the BBC.
As the central banks continue to back themselves into a corner with accelerated currency printing, negative rates seem to be inevitable. The Bank of England seems to be preparing for them while attempting not to spook the markets.
If this happens, it is likely that property will receive a further pump in price.