Steady demand growth and a lack of stock continue to drive prices higher
- Buyer demand rises at the fastest pace since February 2014
- Prices gain momentum for a sixth consecutive month
- Limited stock continues to act as a restraint on both transactions and new instructions
The July 2015 RICS Residential Market Survey shows price momentum gaining pace, driven by a further rise in buyer demand while supply conditions continue to tighten. At the national level, the shortage of unsold stock worsened further during July, with the RICS stock per surveyor measure reaching a record low of 47.
New vendor instructions dropped back for a sixth consecutive month with a net balance of 22% of contributors reporting a decrease. The decline was widespread with 9 of the 12 areas of the UK that we monitor experiencing a decline, led by a particularly sharp fall in East Anglia. Meanwhile, Northern Ireland and the North East of England were the only markets to see a noticeable pick up in new vendor listings. Respondents in all areas agree that the lack of property for sale is causing somewhat of a vicious cycle, as the limited choice on offer at present is deterring would-be movers and therefore further restricting new instructions (44% of respondents, in total, felt this was the case). Meanwhile, new buyer enquiries rose for the fourth month in succession at the national level. The vast majority of areas reported some degree of growth with the South East region the sole exception.
Despite the steady and sustained improvement in demand, newly agreed sales were more or less unchanged at the national level in July. This adds support to the idea that, although there is interest from buyers, the supply shortage is preventing transaction levels from rising significantly. Nevertheless, certain areas such as Wales, Northern Ireland, the West Midlands and the South West have been seeing sales rise in recent months. By way of contrast, transactions fell in the South East and Yorkshire, while remaining broadly flat in London. Going forward, contributors still expect sales to gain momentum in the near term across all parts of the UK.
In keeping with the theme of recent surveys, prices continue to be squeezed higher by growing demand against a backdrop of contracting supply (average stock levels have declined by 20% since January). As such, national house price inflation accelerated for the sixth month in succession and has now reached a pace last seen back in July 2014. Prices are reported to be rising across the majority of areas with Northern Ireland, the North West and East Anglia seeing the strongest momentum. The North East remains the sole exception, where prices were reported to have fallen for the third consecutive month.
Looking ahead, the strongest near term price expectations were returned by respondents in Northern Ireland, the North West and London. Meanwhile, the North East is the only region in which prices are not anticipated to rise over the coming three months, although respondents are expecting prices to increase during the year ahead. Indeed, at the twelve month horizon, all areas of the UK are projected to see sizeable house price growth, with confidence most elevated in East Anglia and Northern Ireland.
Interestingly, at the headline level, a strong majority of 68% of respondents perceive current market valuations in their areas to be either around or below fair value at present. However, this view is not shared by respondents in all areas with 60% of contributors based in London of the opinion that their local market is currently overpriced to some extent. Meanwhile, 54% of respondents in the South East expressed the same view, while 42% believe housing in East Anglia to be expensive. At the other end of the scale, the North East (18%) and East Midlands (16%) had the highest proportion of respondents sensing current valuations to be below fair value.
In the lettings market, tenant demand continued to rise while landlord instructions, despite also edging up, failed to keep pace once more. Consequently, rents are expected to increase right across the UK with members in the West Midlands (4%), the South East (3.3%), East Anglia (3.2%) and London (3%) projecting the sharpest growth over the next twelve months.
Meanwhile, on a rolling three month basis, RICS proxy for credit conditions (‘perceived LTV ratios’) shows that the lending environment relaxed slightly in the three months to July versus the previous three month period. This is in line with the Bank of England’s Q2 Credit Conditions Survey which showed that lenders slightly increased the availability of mortgage finance during the second quarter.
Andy Sommerville, Director of Search Acumen, comments on this latest report:
“The chasm between housing supply and demand shows no sign of closing, but conveyancers will be reassured by the resounding forecast that property sales are set to gain momentum. Sentiment among surveyors clearly points to a further increase in activity, and this comes as no surprise when house price rises are lifting many homeowners out of situations where they have been trapped by negative or low equity.
“It’s certainly good news – for now – that limited supply hasn’t halted four months of rising buyer enquiries. But the problem comes when potential movers find their next step up the ladder is out of reach because prices in a higher bracket have also risen with the tide.
“This limits the number of suitable first- and second-time buyer homes coming onto the market, and the only long-term prospect for growth is for planning reform to overcome supply barriers. Until this happens, the limited stock will put a ceiling on the long-term property recovery.
“For the time being, conveyancers who want to grow their residential business will be pitted against each other to win a bigger share of the market.”