Omicron throws housing market stability into doubt, agency admits

A leading agency has admitted that the uncertainty over the effects of the Omicron Covid variant has thrown forecasts for the housing market into doubt.

Knight Frank says that while most of the world is hoping that positive early anecdotal evidence is matched by what comes out of laboratories in coming weeks, until there is certainty it’s difficult to predict what this means for the industry.

The new variant could produce a delay in the anticipated interest rate rise, which most analysts previously felt was a dead cert when the Bank of England’s monetary policy committee meets next week. 

“We had expected rising rates (along with growing supply) to start applying downwards pressure on prices from next year. However if the Omicron variant proves to be serious, it may affect supply and demand as well as the timing of a rate rise. It’s a frustratingly uncertain outlook” says a statement from Knight Frank. 

The agency nonetheless says one clear trend is that demand has shifted back towards London, which is obvious from looking at the change in the number of new prospective buyers registering in the three months to November compared to last year.

The areas of the UK that saw the biggest increases were in prime central London led by Marylebone, Belgravia and Mayfair - all seeing rises of 78 per cent or above. However, the agency admits that these movements “are dwarfed by what took place in 2020 as the escape to the country trend took hold.”

The agency says many overseas buyers are preparing to enter the market again next year, which means they will be following the Omicron story particularly closely.

“We are seeing more buyers registering, including from the Middle East and overseas, but it still feels like the market is in a holding pattern” admits Christian Lock-Necrews, head of Knight Frank’s Marylebone office. “Most of our activity is still linked to domestic buyers who have sold their house in outer London, moved to the country and now want a central London base.”

Meanwhile, it appears that supply will get somewhat stronger at the start of next year - again with the proviso that Omicron does not alter the landscape dramatically.

Knight Frank says that a vicious circle of low supply was triggered this year as the shelves cleared quickly during the stamp duty holiday, meaning owners couldn’t find anywhere to buy themselves.

The number of market valuation appraisals is a good leading indicator of supply, the agency states. The number was five per cent higher than the five-year average in the three months to November and the figure for last month - November 2021 - was the highest for November in 10 years.

Knight Frank says: “It is unlikely many of these owners plan to list before Christmas and will instead be preparing for the start of next year.”