Rightmove House Price Index for June comments that
– Pace of rises slackens with average national asking prices up by 0.3%
– Asking prices are already falling in real terms with RPI at 5.1% compared with a year-on-year rise of 5.0% in asking prices
– 22% increase in sellers coming to the market following suspension of HIPs results in large jump in unsold stock
– Sellers and tenants face tougher times as deficit reduction measures, such as rumoured CGT increases, disrupt the fragile housing recovery
The release goes on to say:
Miles Shipside, commercial director of Rightmove, comments: “They say that troubles come in threes. The continuing mortgage famine has now been joined by a surge in sellers following the abolition of HIPs and investor reticence driven by rumours of CGT increases. Together, these factors are likely to put an end to this year’s recovery in house prices. It is an unfortunate concatenation of events that disrupts what was sort of passing as normal service, where investor appetite provided an uneasy balance to the first-time-buyer-starved market. A surge of HIP-free properties has come to the market, and mortgage-reliant buyers and wary investors are failing to match the increased supply. That spells tougher times for sellers and tenants, with more properties for sale and fewer finding their way into landlords’ hands”.
This month Rightmove has recorded a 22% increase in the weekly run-rate of new sellers coming to market, up from 27,235 in May to 33,149. New listings are now up 56% nationally compared to June 2009, with London seeing the most dramatic rise in fresh stock at 88%. We believe this surge will tail off to a degree, but higher seller numbers and increased competition are new factors that those who are serious about selling will have to consider when setting their prices.
Shipside adds: “There is a bit of a post-HIP party atmosphere, with estate agents glad to restock their shelves and new sellers willing to give moving a go with fewer cost commitments. Estate agents will get more selective about what price they are willing to market at, and the commitment of sellers to doing what it takes to achieve a sale. Serious sellers in all but the most popular hotspots are going to have to reduce their asking prices unless buyer demand recovers after the World Cup. That’s good news for mortgage-challenged first-time buyers, though should affordability swing enough to bring them back to the market in normal volumes, one has to question whether the wholesale funds would be available to meet the increased mortgage demand. More agents and developers may seek to line up exclusive finance deals to secure their own future pipelines, similar to the 90% mortgage deals struck between Bovis and Barclays”.
This month sees average unsold stock per estate agency branch jumping from 71 to 74, the fourth monthly rise in succession. It is usual to see stock increase in the first part of the year as new sellers take advantage of the spring window, but it then normally starts to decrease in May as it is matched to buyers’ needs. Stock levels are failing to turn downwards, and are now the highest since October 2008. Estate agents report that many investor buyers have disappeared from the market. With cash-rich investors sitting on their hands and general buyer activity still hindered by restricted mortgage funding, the market is being further stymied as the speculated measures to reduce government borrowing move closer to reality. The emergency Budget is likely to heighten buyer nervousness around job security and spending power, while rumoured CGT increases could also permanently dampen the enthusiasm of the all-important investor market. Lettings agents already report a chronic shortage of new landlords, which will feed through into higher rents for tenants.
Shipside says: “Landlords need the right tax and funding environment to actively grow their portfolios and meet rising demand from tenants, who at present have few other alternatives to satisfy their housing needs. More investment in rented property needs to be encouraged to get cash out of investors’ pockets, and they require more certainty of a long-term favourable environment for both rental and capital appreciation”.
Any landlords looking for a speedy and profitable sale in order to avoid CGT changes should be wary of increased competition in the price band below £150,000, the price bracket favoured by buy-to-letters. The dearth of mortgage finance is still impacting first-time buyer activity so achieving a quicker sale, to avoid or minimise any CGT changes, could come at a price. Another factor of frustration for the professional investor and owner-occupier
alike is that the effectiveness of property investment as a hedge against inflation is also under pressure. With the RPI now at 5.1%, the year-on-year increase in asking prices of 5.0% represents a decrease of 0.1% in real terms.
Shipside comments: “We forecast the annual rate of increase in asking prices to be at zero by the year end, and RPI remains stubbornly high. Property is a traditional hedge against inflation, but as so often in this downturn, the rulebook appears to have been turned on its head.”