2017: Stability and a level playing field?

HEADLINES

Rightmove: “Strong November sales outweigh uncertainty as Rightmove forecasts 2 per cent rise in 2017.”
NAEA: “Record number of properties sold at less than asking price.”
RICS: “No easing in supply constraint for now.”
Nationwide: “Annual price growth stable as 2016 draws to a close.”
Halifax: “Annual house price growth rises to 6.5 per cent.”
LSL Acadata HPI: “England and Wales house prices finish on a high.”
Hometrack: “City house price growth to slow to four per cent over 2017.”

KEY FACTS:

Average prices across the indices vary from mortgaged only prices from the Nationwide HPI (Dec 16) of £205,898, through to marketing prices (ie not necessarily sold) from Rightmove (Dec 16) of £299,159, a 45 per cent difference. Average sold prices from the UK HPI stand at £232,655 (Oct 16).
Kate says: The reports this month cover three key trends. The first is how 2016 faired versus 2015. Halifax claims that prices are up 6.5 per cent year on year, while Nationwide data shows prices rose at the same rate of 4.5 per cent in 2016 as they did in 2015, showing a steadier property price market than seen since the credit crunch. According to LSL, “December showed some of the strongest monthly growth since the beginning of the year, however, annual growth slowed slightly to 3.1 per cent in December from 3.5 per cent in November.” The year ended with prices (ex London and the South East) up 4.4 per cent year on year. NAEA and the RICS focus on the demand versus supply, and although supply constraints still exist, the RICS report that “conditions remained broadly unchanged relative to October with an increase in instructions in some parts offsetting falls elsewhere.”

Accelerating cities like Cambridge and Oxford are now slowing on stretched affordability levels.

According to the NAEA, 84 per cent of properties sold for less than their asking prices in November. Rightmove forecasts a two per cent increase in prices, Hometrack believes City house price growth will slow from the current 7.7 per cent rise year on year to 4 per cent, mainly due to slower growth in London and the south.

Overall, everyone is expecting a quieter 2017, but considering the last 10 years’ mix of a credit crunch property price falls, followed by rapid rises as the economy recovered (in some areas), a more stable property price market should be welcomed.

REGIONAL DIFFERENCES

RICS: “For the second consecutive month, the strongest growth was in the West Midlands and North West. In London, Wales and North East England, slightly more surveyors reported a fall rather than a rise in prices. However, in London (this data tends to better reflect activity in the inner boroughs rather than the outer zones) the downward momentum looks to have eased significantly relative to previous months.”
LSL Acadata HPI: “In November – the latest regional data available – of the ten areas in England and Wales, Greater London had the lowest rate of annual house price inflation at 0.2 per cent. This contrasts with March 2016, when London had the highest rate in all areas at 13.3 per cent. In November, the East held its position at the top of the ‘leader board’ for the seventh month, having the highest annual increase in average house prices, at 7.9 per cent.

“The South East remained in second position, but the South West fell to fourth place, behind the West Midlands in third place. The North West experienced the highest change in its annual rates, increasing by 1.6 per cent in the month.”
Hometrack: “UK city house price inflation is running at 7.7 per cent, up slightly on 12 months ago (7.3 per cent), in line with our projection for seven per cent capital value growth over 2016. Comparing the current rate of house price growth to 12 months ago reveals three distinct trends for price appreciation. Accelerating cities – London, Oxford, Cambridge, Bournemouth and Bristol – typically these are the ‘high growth’ cities of the last five years which are now slowing on stretched affordability levels and falling sales volumes.

The slowdown in Bristol is less marked but since mid-2016, growth has declined from 14 per cent per annum. Belfast is included in this group. Strong, steady growth – includes Birmingham, Manchester, Leeds, Leicester, Nottingham and Portsmouth. These cities register robust, consistent price growth of 5-8 per cent per annum over the last 12 months. Falling – just Aberdeen, continues to register year on year price falls (-6.4 per cent per annum) as the 50 per cent decline in the oil price impacts the local economy and housing demand. Cambridge recorded the most pronounced slowdown in of growth over the last 12 months down from over 12.5 per cent to 2.5 per cent.”
Kate says: This data from Hometrack is the most useful regional analysis this month and it helps agents to communicate with their clients about their options:

In Accelerating cities, which have seen solid price growth over the last five years but are now slowing due to affordability issues – agents need to consider promoting Help to Buy, Shared Ownership and areas which can still be considered ‘good value’ or commutable to the city centres. For example, Peterborough has easy access to Cambridge.

“Strong, steady growth” – cities showing good growth and continue to have affordable areas and properties. However, it’s important for investors to know that although these areas may be affordable and offer OK rental returns, they may not see the level of price growth achieved in the ‘accelerating cities’ and have areas where property price growth has been virtually non-existent and in some cases, prices fell dramatically during the credit crunch and didn’t recover.

Finally, ‘cities’ that are falling, although Hometrack is only tracking Aberdeen.

The analysis shows how local economies have the most influence on what happens to house prices rather than previously seen ‘national’ movements. The question is whether areas in the North and countries such as Wales and N. Ireland will ever see any of the double digit growth experienced in London and the South, or if property price growth is slowing and will match economic and income growth for the first time since the Millennium.

PROPERTY TRANSACTIONS

Most commentary focuses on prices, but as anyone in the property industry knows, prices are driven by supply and demand, which is why performance is so localised, pretty much to a property on a street.
LSL Acadata HPI: “The level of sales has fallen across all of England and Wales, although the decline is more pronounced in the South. This is especially the case in Greater London where volumes are down by -34 per cent.”
Bank of England: “The number of loan approvals for house purchase was 67,505 in November, compared to the average of 64,178 over the previous six months.”
BBA: “Gross mortgage borrowing of £12.2bn in the month was five per cent lower than in November 2015. Net mortgage borrowing is 2.4 per cent higher than a year ago.”
Kate says: Overall, property sales on a quarterly basis are down year on year, but this is due to the substantial purchasing activity we saw in Q1 of 2016, so potentially is still showing an artificial picture. In reality, sales are actually down year on year by just 3.9 per cent versus 2015 and 4.4 per cent versus 2014, so overall we have seen transactions fall while prices have still risen due to stock shortages to date.

From a finance perspective, mortgage lending remains positive with both the Bank of England and the BBA showing house purchases were up towards the end of the year versus the annual average and net mortgage borrowing up 2.4 per cent versus a year ago.

Agents need to look at providing both property and financial advice to make money in 2017 rather than just rely on sales income. This is especially important in areas such as London and the South East where sales volume are likely to be hit the most.

SUPPLY AND DEMAND

From a demand perspective, the NAEA recorded “an average of 344 house hunters registered per branch in November, a decrease of 22 per cent from 440 in October, which is in line with seasonal expectations.”

RICS survey shows demand actually increased the following month with 13 per cent more surveyors reporting a rise in new buyer enquiries rather than a fall, and enquiries increased in most of the UK in November.

Overall this appears good news for the latter part of the year as according to RICS, “The increase in demand led to a further rise in agreed sales with a net balance of nine per cent of contributors reporting growth over the month. While this is the highest reading since February, it is still indicative of a very moderate rise in activity.

From a supply perspective, Rightmove and NAEA showed that average property stock per branch took an end of year downturn. Meanwhile the supply of new build property shows no real growth – private registrations down; affordable up.

During Sept ’16 – Nov ’16, the number of NHBC new home registrations was 40,335, compared to 38,134 in the same period last year. 30,587 were registered in the private sector, a three per cent increase compared to last year (29,586). 9,748 were registered in the affordable sector, a 14 per cent increase compared to last year (8,548).

Kate Faulkner, Property Market Analyst and Commentator www.propertychecklists.co.uk Email: [email protected] Telephone: 01652 641722