The suspension of the residential property market is disheartening for those who were hoping to buy a first flat or new-build house this spring. But spare a thought also for estate agents, who are usually well back in the queue for public sympathy but are nevertheless a familiar part of our high-street fabric, their windows and websites feeding the national aspiration to home ownership that also fills so many hours of Kirstie-and-Phil television.
With government urging completions to be deferred, mortgage lenders tightening their terms, viewings and removals impossible and shares in the bellwether London agency Foxtons down by half, the whole sector is now in what Niraj Shah of Bloomberg Economics calls ‘an induced coma’. The search site Zoopla’s estimate that trans-action volumes will fall by 60 per cent looks, frankly, optimistic — and the more pertinent question is what will happen in September or October, when pent-up demand is released to meet a wave of distressed sellers. Mortgage availability and government support schemes will be key factors, but my guess is there’s bound to be a sharp fall — and that won’t be an entirely bad thing.
In the 2008 crisis and its aftermath, average UK house prices fell by around 17 per cent, then took five years to recover. But between the injection of George Osborne’s Help to Buy boost in 2013 and the onset of Brexit nerves in 2016, they surged by 37 per cent in the south-east, creating huge obstacles for would-be buyers wanting to live within commuting distance of London and a sense among twentysomethings that they may never be able to climb onto the property ladder at all.
If the market reopens in the autumn with sales being agreed at, say, up to 20 per cent below pre-virus levels, those who bought on big mortgages in the past couple of years may find themselves in ‘negative equity’, a peril of the early-1990s property slump that eventually went away when prices recovered. But on the positive side — assuming incomes are restored, housebuilders are active and lenders are willing — affordability will be substantially improved, and the generation that will lead our long-term recovery might actually be able to afford a roof over their heads: in our search for potential silver linings, there’s another for the list.
Oil in the trough
Likewise a sudden plunge in oil prices, which dipped to an 18-year low at less than $20 a barrel on Monday in response to rapidly falling industrial and transport demand, combined with excess supply caused by the ill-timed price war between Russia and Saudi Arabia. There used to be a clear relationship between oil prices and economic cycles — spikes heralding recessions, troughs boosting recoveries — but more efficient and diverse energy use has diluted that link. Nevertheless, if a full tank is cheaper once we’re allowed out on the roads again, that will help suppress the inflationary effect of huge money-printing rescue packages.
The corresponding fear, however, is of a domino impact on the already strained US financial sector of widespread bankruptcies among debt-laden shale oil drillers, who need a barrel price north of $50 to stay viable. In short, I’ll continue trying to spot chinks of light — but there is also an infinite range of ifs, buts, unknowns and possible collateral consequences. All any commentator can really do is watch and hope.
What did you do in the war?
‘Underlying health conditions’ has become the phrase we anxiously wait to hear attached to daily reports of Covid-19 fatalities. It applies in the business context too, at least so far. BrightHouse, the ‘rent-to-own’ retailer that failed on Monday, had been in trouble for months, just as Carluccio’s restaurant chain had been battling against a Darwinian shakeout in ‘casual dining’ since it first struck a deal with creditors two years ago. But as time passes, the economic virus will become less discriminating: previously strong and admired businesses will be brought down by shortage of cash — and that unfairness will throw a spotlight on others that thrive. They are the ones that will face questions afterwards recalling a famous 1915 recruitment poster: ‘Daddy, what did you do in the Great War?’
I’m thinking particularly of BT, Virgin Media and other internet and mobile providers, for whom demand is booming as the nation works from home, phones friends and family it cannot visit, and spends vastly more time online than ever before. So far, the leading companies have agreed to remove ‘hidden data caps’ on supposedly unlimited broadband contracts and to go easy on late payers. But now would be the moment to offer free broadband to the unconnected elderly and those ‘shielded’ for medical reasons, and to do the maximum to help parents home-school their children. Equally important is to keep BT Openreach and other maintenance services working at full capacity, because breakdowns will cause extreme anxiety as well as logistical chaos.
All this gives new meaning to another familiar phrase, ‘corporate social responsibility’. It’s the strongest companies which need to show it most.
Meanwhile, yet another feature of normal life that will have to be suspended for the duration are my regular restaurant tips disguised as economic parables. At least, I won’t be able to offer any new discoveries. But that doesn’t mean I can’t share Proust-ian memories — I dream of fruits de mer at Le Comptoir à Huîtres in the Dieppe docks. And I’ll lob in some handy lockdown recipes, starting with this one. A glossy cruise brochure flops through the letterbox in a wrapper that declares itself to be made of ‘fully compostable potato starch’. How bloody irrelevant is that, I’m thinking. But then again, if panic shoppers have cleared the Co-op shelves, maybe I can boil it, butter it and serve it with roast squirrel.