Demand sees further moderate rise while price momentum accelerates
- Buyer enquiries increase moderately and across the majority of areas
- Price momentum continues to rise and expectations strengthen
- New instructions remain in short supply, with respondents seeing a slight fall over the month
The June RICS Residential Market Survey shows a further acceleration in price growth with the headline price balance hitting an eleven month high of 40. Prices are reported to be rising in the majority of areas, with Northern Ireland and Eat Anglia seeing particularly firm momentum during the month. Driving this pick-up in growth was a further modest rise in demand across most parts of the UK alongside yet another decrease in the level of new instructions.
Buyer demand rose in each area except the South East with the headline new buyer enquiries series coming in at 17. Demand in Scotland and Northern Ireland remains on a firmly upward trend while London and the West Midlands also saw a pick-up in enquiries over the month. With mortgage rates still near record lows and the labour market continuing to strengthen, this moderate increase in demand is no real surprise. Although the most recent mortgage approvals data (from the Bank of England) for May showed a 4.7% fall versus the April figure, this probably just reflects some recoil from the sharp rise the previous month, and the underlying trend does appear to be gently upwards. Reflecting this, respondents expect activity levels to pick up across all areas over the coming three months with the headline sales expectations balance reaching its highest level since April 2014, at 36. At the twelve month horizon this positive outlook for sales growth is also shared across all areas and the headline expectations net balance remained broadly stable at 48.
Supply of new stock to the market decreased once again in June with the headline RICS New Instructions balance remaining in negative territory for the fifth consecutive month, at -14. Discussions with some respondents suggest that the underlying causes of this continued supply shortage vary across different parts of the UK. Transaction costs are one significant factor in some of the more expensive markets. Costs such as stamp duty are making renovation/extension works more financially appealing than changing home. There is some consensus that the lack of stock is, to an extent, self-perpetuating as it acts as a deterrent to new vendors entering the market due to the reduced choice on offer for the next purchase. With respondents, on average, reporting no change in the number of appraisals carried out in June, there is no signal, as yet, that the supply shortage is going to improve. Indeed, stocks per surveyor reached a new low of 49.5 per branch in June.
Despite the lack of new supply, the RICS Agreed Sales balance showed a further marginal increase in transactions in June with the headline balance remaining unchanged at 5. This headline figure hides substantial variation across areas with the most consistent feature of the data over the last year being the sustained contraction in activity in London and the South East and the persistent increase in Northern Ireland.
The outlook for prices strengthened once again in June with respondents in all areas now expecting an increase at both the three and twelve month horizons. A net balance of 41% of respondents envisage prices rising in the coming three months while the twelve month expectations series reached a 15 month high of 75. Contributors, on average, foresee prices rising by a little over 3% in the year to come with price growth accelerating thereafter to an average of 4.8% per annum over the coming 5 years.
In the lettings market tenant demand continues to rise, but at a more moderate pace, with the headline demand net balance coming in at 28. New instructions to let remained broadly unchanged, at -3. This marks the 18th consecutive month that demand has outpaced supply, pushing the three month rent expectations net balance to 38%. Respondents, on average, expect rental values to rise by 3% over the coming year and by an average of 4.8% per year over each of the next 5 years.
RICS’ proxy for credit conditions (‘perceived LTV ratios’) has shown an improvement across all categories of buyer in recent months with the headline series (on a 3 month average basis) reaching its highest level since the first quarter of 2014.
Andy Sommerville, Director of Search Acumen, comments:
“A record drought in housing stock per surveyor is yet another indication that piecemeal housing policies are equivalent to putting a plaster on a tumour.
“The key issue of increasing housing supply needs to be addressed by the government when it comes to solving the housing crisis. The latest reforms announced in the summer budget, such as restricting buy to let tax relief, may provide some comfort to first time buyers, but this could equally lead to a hike in rents: another blow for those aspiring young people trying to save up enough to get on the property ladder. In the meantime, we wait for more promising news on solving the housing crisis in Friday’s announcement on planning reforms.
“The rise in buyer enquiries is a welcome sign that demand for homeownership remains strong and lenders’ willingness to do business provides further reason for cheer in the second half of 2015. In the meantime, with little movement in housing stock, conveyancers need to strengthen their offering with a thorough review of systems and processes to get business through the door.”