Prices gain further momentum as supply tightens once more and demand picks up speed

  • Buyer demand increases at fastest pace since April 2014
  • New instructions continue to fall with average stocks per surveyor hitting a fresh low
  • Near term price expectations tick up, led by London

The May 2015 RICS Residential Market Survey results point to a further (albeit modest) acceleration in house price inflation over the month, with the headline balance edging up to +34 from +32 last time out. What’s more, the rate of price growth has now quickened in each of the last four reports after slowing markedly during the second half of 2014. Tight supply conditions continue to be a key factor underpinning prices with fresh instructions to sell becoming increasingly sparse while average stocks per surveyor fell to a new record low (52 properties).

Indeed, hopes of an immediate post-election bounce in new vendor instructions appear misplaced, as fresh listings declined (on a seasonally adjusted basis) for a fourth consecutive month and have now failed to see any meaningful growth since the end of 2013. The sharpest contraction was once again seen in London and the North West. By way of contrast, the only reported rise in new instructions came in Scotland. New buyer enquiries increased in May after several months in which demand had remained broadly flat. Significantly, ten out of the twelve areas covered in the survey registered a pick-up in enquiries, while buyer interest was more or less unchanged in Wales and the South East.

Peter Rollings, CEO of Marsh & Parsons commented: “An ‘interesting’ month with 2 bank holidays and a general election. Good burst of activity outside PCL following election and central London just starting to improve. “

Simon Aldous, Director of Valuation at Savills commented: “Before the election, the prime London market was very slow with limited number of transactions and very few applicants. We are now beginning to see a return to a normal market, albeit there are still high levels of stock. “

The gentle improvement in demand has yet to be reflected in the agreed sales data which shows transactions edged up very slightly, effectively reversing the modest falls recorded in the preceding two months. Nevertheless, several parts of the UK are now seeing solid activity growth, most notably the South West, Northern Ireland and Yorkshire and Humber. At the other end of the scale, sales are still dwindling in London and the North West (a lack of suitable stock may form part of the explanation). Looking ahead, three month sales expectations strengthened both at the headline level and across most parts of the country (including the two aforementioned regions), while respondents still anticipate significantly firmer increases at the twelve month horizon.

Despite the relatively stable sales trend, modest demand growth and an acute shortage of supply are combining to push house price inflation higher. As such, price growth has now gained momentum in four successive months, while average stocks per surveyor have decreased by around 12% since the turn of the year. When viewing price momentum at the country/ regional level, the North West, Northern Ireland, East Anglia and the South West posted the fastest rates of increase over the past three months, measured in net balance terms.

Interestingly, the May results show a substantial uptick in near term price expectations. Indeed, the net balance of surveyors expecting prices to rise (rather than fall) over the next three months increased to +38 from +17 previously. This upward shift in sentiment was led by London, where expectations rose to +49 after +12 in April. In fact, the North West is now the only region exhibiting stronger near term price expectations than the capital. Over the next twelve months, respondents remain confident that prices will rise across all parts of the UK.

In the lettings market, tenant demand continued to increase in May (on a non-seasonally adjusted basis) extending an uninterrupted run of demand growth into a fifth straight month. Within this, East Anglia was the stand-out performer, as was also the case in April. At the same time, new landlord instructions experienced little change at the headline level, in keeping with the trend seen over much of the past five months. On the back of tightening market conditions, contributors anticipate rents will rise across all parts of the UK over the next three months, with expectations most elevated in the East Midlands and the South West (although all areas returned solid readings). Over the next twelve months, rents are projected (by survey respondents) to increase by just under 3% on average at the nationwide level.

Simon Aldous, Director of Valuation at Savills commented: “There remains a finely balanced lettings market, albeit in the new developments sector there are significant downward pressures on rents. “

Meanwhile, credit conditions appear to have eased further with the composite measure of ‘perceived’ LTV ratios edging up slightly (now standing a shade over 79%), a trend that has persisted in each of the past three months.

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