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Property market snapshot: run put to Xmas

Designs on property tracks and summarises the property indices. Kate Faulkner says: “Confidence is waning. Brexit is starting not to influence the market, but to influence people’s confidence. As Christmas approaches, unless you have to, why would you move?”

Kate Faulkner

Christmas house in snow image

HEADLINES

Rightmove: “Subdued prices provide first-time buyer opportunity this autumn.”
Home.co.uk: “Price cutting hits 7-year high as vendors’ patience wanes.”
NAEA Propertymark: “Number of homes available to buy up 15 per cent.”
RICS: “Prices, demand, and supply all in decline as Brexit uncertainty persists.”
Nationwide: “Annual house price growth lowest since May 2013.” Halifax: “Annual house price growth slows to 1.5% – lowest rate in five years.”
LSL Acadata HPI: “Annual price growth continues to slow but there are monthly price rises again.”
LCPAca Residential Index: “New build premium increases to almost 15%.”
Hometrack: “City house price inflation moderates to 3.2%, down from 3.8% a year ago.”

KEY FACTS

Average prices across the indices vary from mortgaged-only prices from the Nationwide HPI (Oct 18) of £214,524, through to marketing prices (ie not necessarily sold) from Rightmove (Oct 18) of £307,245 and actual prices from LSL Acadata HPI of £304,433 (Oct 18). Average sold prices from the UK HPI stand at £232,797.

Low levels of discounting reflect market confidence and demand – high levels of price cutting are symptomatic of falling confidence and less demand.

Home.co.uk reports that, “As markets slow, vendors’ frustrations increase and prices began to drop. The ‘discounting level’ is one of the key indicators as to the health of any market. Low levels reflect strong market confidence and demand, but high levels of price cutting are symptomatic of falling confidence and demand. The last time we saw price cutting of this magnitude was back in September 2011 when Greater London was showing the first signs of recovery post-crisis. Back then, price cutting was in a downward trend as demand and confidence in the housing market were both on the rise. Moreover, the current total of properties for sale is much lower than in 2011 and therefore the current level of discounting is proportionally more. In fact, we need to go back to January 2009 to see this proportion of discounting relative to the total stock for sale (currently around 16 per cent or one in six properties on the market).”
NAEA Propertymark: “In September, 88 per cent of properties sold for less than the original asking price – the highest number ever recorded.”

Kate Faulkner imageKate says: “Although different regions are at different stages of the property cycle, it’s clear that the cycle is heading towards market stagnation. This is being driven by two things:

Most areas now have seen the ‘bounce back’ from the recession when we lost 50 per cent of buyers (and sellers) for almost five years, so the lower transactions should have been expected as we move into a more normalised market.

Confidence is waning. Brexit is starting not to influence the market, but to influence people’s confidence. Unless you have to, why would you buy and sell with so much uncertainty at the moment?

These two factors, coupled with the loss of buy to let demand and more landlords selling up, are very much the cause of property prices starting to be reduced as people are keen to move before Xmas.

Unfortunately though, until Brexit is sorted and we either crash out or get a deal, the news is going to continue to spread doom and gloom and this in turn is likely to prevent people pushing ahead with major moves.

However, as yet all this suggests a slowdown as opposed to a ‘crash’ and the falls we’ve seen in the prime market in London don’t appear to be rippling out to other areas as they have before. What we are seeing is the Home Counties, East of England and the South which have grown by 40 per cent or more over the last few years, starting to slip back as affordability bites.

COUNTRY DIFFERENCES

England prices year on year are just keeping up with inflation at 2.9 per cent growth, but any more slippage means the 50 per cent plus people who own their homes outright may see their property values start to fall in real terms. Meanwhile, Wales is pretty much ‘booming’ in comparison, seeing growth of 6.2 per cent, although only recent buyers will have felt the benefit of this, as since a decade ago, average prices have only increased by 8 per cent – or in cash terms, by £12,000, hardly helping people to move up the ladder much and no doubt for some their property value is unlikely to have improved at all as this is an average.

Scotland is just behind Wales, while Northern Ireland, the average property price is still just over £90,000 lower than it was 10 years ago. However, the good news is there is some steady year on year growth of four per cent. However, the property price bubble has well and truly burst here.

Kate says: The regional performance from a price perspective shows the ‘ripple effect’ we have seen in the past of London leading a downturn or upturn and then the rest of the country following region by region, just isn’t happening. Much of property price analysis is focused on London, but the most interesting property region for me is the North East – we just haven’t seen a ‘bounce’ here. After a decade, we are still seeing prices 4 per cent lower than they were 10 years ago and prices are still one of the lowest year on year growth wise: just 2.9 per cent, way below the normal 6 per cent year on year growth.

Savills’ recent forecast report shows that the real loss of transactions in the market is the fall from 653,000 mortgaged moves per year to just 370,000, as people stay in their homes longer.

I don’t think I have ever seen a situation where property prices have grown by 63 per cent in London, yet are still 4 per cent lower in the North East and year on year, prices are falling in London and the North East growing by just 2.9 per cent. The Midlands though is the ‘star’ performer this year and seems to have had its bounce, so perhaps the North East has missed its bounce due to the doom and gloom in the economy and from Brexit. The question is whether that will kick in once news becomes more ‘cheery’ in 2019.

Home.co.uk: “In the East of England prices have begun to drop following several years of rapid growth. Greater London, the South East, the East of England and the North East are now all indicating negative price growth over the last 12 months. The North East is the only region not to have experienced a market recovery post-crisis, and prices simply continue to slide. Prices in the South East continue to fall.”

RICS: “In the October survey, 10 per cent more respondents saw a fall in prices at the headline level. This is the weakest reading since September 2012, and mostly stems from London and the South East, with the price balance in the South East deteriorating during October. East Anglia, the South West and the North East also saw negative price balances, but prices continue to rise in other parts of the UK, with the strongest growth in Northern Ireland and Scotland.”

LSL Acadata HPI: “With overall annual price growth well below the rate of inflation of 2.2 per cent (as of September), house prices in England and Wales are seeing real term falls in most regions, and are now growing at their slowest rate in over six years, since April 2012. The West Midlands and East Midlands are bucking the trend, however, with growth of 3.1 per cent and 2.8 per cent respectively. All regions have seen annual house price growth reduce in the last month, with the slowdown most pronounced in the North East, dropping by 1.7 per cent to -0.2 per cent, and in London and Wales, with growth slowing from 3.0 per cent to 1.8 per cent in both cases.”

Hometrack: “Liverpool is the fastest growing city with annual inflation at 6.9 per cent followed by Birmingham (6.5 per cent) and Leicester (6.4 per cent). There are five cities where house price inflation is running at over six per cent, more than twice the rate of earnings growth (2.7 per cent), as prices rise off a low base and affordability remains attractive. “

House prices are falling on an annual basis in two cities, Aberdeen (-4.4 per cent), London (-0.4 per cent). London has attracted significant focus as a market experiencing the greatest downward pressure on house prices. The annual rate of growth in London has been negative for the last seven months, largely a result of quarterly price falls in the six months to January 2018.”

Kate says: Property price inflation in towns and cities is definitely better than in more rural areas, so here the picture tends to look more improved than the average. Typically, according to Nationwide, property prices rise in excess of inflation by 2.7 per cent. However, over the last 10 years, that hasn’t happened – and it is unlikely to in the next five. From 2008 to 2017, inflation in the UK has grown by 27 per cent. That means just seven out of 26 towns and cities which we track, have increased ahead of this rate. And this low growth is as bad news for the market as Brexit or a poor economy as it means people aren’t gaining enough equity to move up or down the ladder. This is reflected in Savills’ recent forecast report which shows that the real loss of transactions in the market is the fall from 653,000 mortgaged moves per year to just 370,000, partly due to people staying in their properties longer, which they believe has increased from nine years in 2007 to 13.5 years, and this is unlikely to change anytime soon.

PROPERTY TRANSACTIONS

Most commentary focuses on what is happening to property prices, but property prices are driven by what happens to supply and demand, which is why performance is so localised.

LSL Acadata HPI: “In October 2018, there were an estimated 75,000 transactions – based on Land Registry counts for England & Wales – three per cent higher than our still estimated September figure of 72,500 sales. This increase is in line with the seasonal uplift in sales volumes for the time of year, based on the last 20 years of data. The October sales volumes are six per cent down on the same month in 2017, but two per cent higher than October 2016. however, we estimate that housing transactions for England & Wales in the first ten months of 2018 are some four per cent lower than for the same period in 2017 and duly reflected in house prices.”

LCPAca Residential: “Transactions have fallen on an annual basis by 3.2 per cent and now stand at 779,638. Falling transactions is the common theme throughout all the sectors reported on, and it appears there is still very little cause for optimism.”

NAEA Propertymark: “Sales to FTBs increased marginally to 22 per cent in September, after sales to the group hit a three year low in August of 20 per cent. The number of sales agreed per branch remained the same in September, with an average of nine per branch.”

Bank of England: “The number of mortgages approved for house purchase was broadly unchanged at 65,000 in September. This gives us an indication of the potential trend in new mortgage lending in coming months.

TRACKING BUYER DEMAND

The Advisory track current market conditions. So buyers and sellers can gain an independent view of how easy it would be to buy and sell their home in their area. This makes it easier for good agents that are honest about market conditions to value and manage expectations.

RICS: “The weaker trend in prices is being driven by the lack of demand from new buyers, which is in part a result of heightened political uncertainty, ongoing affordability pressures, a modest upward move in interest rates and a lack of fresh stock coming onto the market. In October, 14% more respondents reported a fall in buyer interest, which is the third report in a row in which demand has deteriorated (at a UK level).

“In terms of new instructions, and the supply pipeline, virtually all UK regions saw a further decline as average stock remains very close to an all-time low. Furthermore, there appears little chance of any meaningful turnaround, as a net balance of 30 per cent of respondents reported the number of appraisals to be down on year on year basis.

“Given these conditions, it is little surprise that sales remain subdued, with the third consecutive monthly decline in transactions. In fact, sales were reported to be either flat or negative across eleven of the twelve UK regions/countries during October.”

NAEA Propertymark: “The number of house hunters registered per branch rose by six per cent last month, from 320 in August, to 338 in September. Despite this short-term trend, demand is down by 14 per cent yearon- year, as there were 394 house hunters registered per branch in September 2017.”

Kate says: Demand and supply is key to understanding what happens to prices. It’s clear at the moment there is more stock sticking on the market, especially as we are seeing how many people are reducing their property prices in order to secure a sale. The only areas where this doesn’t apply is the North East and Yorkshire and Humberside, everywhere else in England and Wales transactions seem to be sliding.

Property hotspots 2018 mapNew data from The Advisory allows agents and consumers to find out how their market is performing right down to postcode level. This month they suggest that the ‘hottest’ markets are in postcodes B44 (Birmingham), BS3 (Bristol) and B27 (Birmingham), while the toughest markets are in NW8, WC2 and W1 (all London).

From a forecasting perspective, if we do get to Brexit smoothly over the next few months, the market may bounce back next year, but it’s likely to be subdued to the end of the year. The problem then comes if the uncertainty continues into the New Year, making people decide to stay put for another year, saving more, spending on a decent holiday or upgrading their home. This could depress the market so much that we see volumes fall back towards recession levels – although Savills are more optimistic and expect volumes to remain the same as this year over the next five years.

However, this doesn’t mean a crash, just a fall in transactions, currently prices are, in the main, still holding up fairly well despite the lack of ‘good news’.

December 12, 2018

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