A window of opportunity?

HEADLINES

Rightmove: “Window of opportunity for first-time buyers in New Year.”
NAEA: “House sales buck trends in busy December.”
RICS: “Landlords expected to scale-back portfolios.”
Nationwide: “Steady start to the year for UK house price growth.” Halifax: “Annual house price growth eases to 5.7 per cent.”
LSL Acadata HPI: “A new milestone: average price in England and Wales tops £300,000.”
Hometrack: “City level house price growth 7.2 per cent over 2016.”

KEY FACTS

Average prices across the indices vary from mortgaged only prices from the Nationwide HPI (Jan 17) of £205,240, through to marketing prices (ie not necessarily sold) from Rightmove (Jan 17) of £300,245, a 46 per cent difference. Average sold prices from the UK HPI stand at £234,278 (Nov 16).

Kate says:
Most of the indices have recorded a better than expected change to property prices at the start of the year, with both Rightmove and LSL Acadata HPI suggesting an average price of just over £300,000 for the first time. However, an average annual growth of 3-5 per cent is a lot lower than previous increases, so it looks like, after ten years of roller coaster rises and falls for property, that future growth is assured, but much more steady and in line with wage growth than it has been in the past.

The big question for this year is what will happen to the buy to let sector. The latest housing market white paper was an odd one. We were full of high expectations, but unless you are a developer or into build to rent or social/affordable housing, there really wasn’t much to say apart from re-iterating that being a buy to let landlord or a letting agent was not looked on kindly by the current cabinet.

For agents moving forward, looking after existing landlords, helping new ones understand how to be successful under the new rules for buy to let and ensuring you are clued up government schemes for new builds on help to buy, shared ownership, rent to buy and the new starter homes, is essential to maximise business this year.

After ten years of rollercoaster rises and falls for property, it looks like future growth is assured, but much more steady and in line with wage growth than it has been in the past.

REGIONAL DIFFERENCES

RICS: “Central London has now been in negative territory for eleven consecutive months. Most other parts of the UK continue to see prices rise, with the North West returning the highest net balance for a third survey running. Elsewhere, house prices across the South West and Northern Ireland were also reported to have seen strong growth in the latest results.

Going forward, London is the only area where near term prices expectations are negative. At the twelve month horizon, price expectations sit firmly in positive territory across most parts of the UK. London is again the sole exception, where the outlook has now turned marginally negative.” (Jan 17).

LSL Acadata HPI: “In December 2016, the North East became the first region in three-and-a-half years to have seen a fall in average prices over a twelve month period, albeit by just £60. In Greater London, prices rose by £7,800, or 1.3 per cent over the year. East of England is in top spot for the eighth month in succession, at 7.1 per cent, with its London commuter areas of Bedfordshire, Luton, Southend-on-Sea and Essex all setting new peak prices in the month.

The South East is in second position at 4.9 per cent, followed by the East Midlands, up from sixth position last month, with locations such as the city of Nottingham, and the counties of Derbyshire, Northamptonshire and Nottinghamshire also setting new peak prices in the month. The North West, West Midlands and the South West, all recorded a +3.9 per cent increase in house prices, with Yorks and Humber, Wales and the North East seeing price increases ranging from 0.0 per cent to +2.3 per cent.” (Jan 17).

Hometrack: “UK city house price growth was 7.2 per cent over 2016, down slightly compared to 2015 (7.7 per cent) but in line with the average rate over the last 18 months. Falling unemployment and rising earnings continue to stimulate demand in more affordable housing markets where buyers are using low mortgage rates to bid up the cost of housing. The headline rate of growth masks a clear shift in underlying growth at a city level where the impetus for growth is shifting from London to regional cities with more attractive affordability and headroom for further price inflation.

“Bristol was the fastest growing city in 2016. Average prices increased 9.6 per cent down from 11.6 per cent in 2015 but affordability pressures are set to result in slower growth in 2017. Manchester recorded the second quickest rate of growth over 2016 at 8.9 per cent. This is the highest rate of growth in the city for over 11.5 years (July 2005).

As we have highlighted in recent city index reports, underlying market conditions remain strong in Manchester. Average prices in London increased by 7.3 per cent over the year. This is the lowest annual rate of growth recorded across London for over three years (July 2013). Stretched affordability levels, with the price/earnings ratio at 14x, points to a prolonged period of price re-adjustment in the London housing market over the coming years.

“Other cities recording faster growth than London in 2016 include Oxford (8.1 per cent), Portsmouth (8.0 per cent), Southampton (7.9 per cent), and Birmingham (7.5 per cent).

“Aberdeen house prices posted something of a revival in the final quarter of 2016. House prices registered an above average increase of 2.9 per cent over the final quarter. This reduced the rate of annual price falls to 3.2 per cent as the market bottoms out after registering an 11 per cent drop in average house prices since 2014.” (Dec 16).

Kate says:
House price changes continue to ‘defy’ previous trends. In the past, London would do well, this growth would spread to the home counties and then beyond. Although regional figures suggest this is still the case, with London, the South and Midlands are rising slightly beyond their long term average with the North, Wales and Scotland still running slightly behind.

However, looking to individual town performances and we have the likes of Reading, Manchester, Leicester, Norwich and Bristol all performing well. This seems to be reflecting the increase in demand for homes in cities as opposed to moving out to more rural or smaller towns, increasing demand where there is typically a shortage of supply.

London seems to be the one area that we are not sure how it will perform moving forward. The huge increases since the credit crunch now seem to have abated, and as Hometrack point out, affordability is beginning to bite and may well hold back the capital from its previous high annual growth.

PROPERTY TRANSACTIONS

Most commentary focuses on what is happening to property prices, but as anyone in the property industry knows, property prices are driven by what happens to supply and demand, which is why performance is so localised, pretty much to a property on a street.

LSL Acadata HPI: “The number of housing transactions in January 2017 in England & Wales is estimated at 60,000. This is 20 per cent lower than December’s total, but one should note that on average, volumes fall by 28 per cent in January, as the Christmas period takes its toll on the subsequent month’s transaction levels. Our predictions for January 2017, although lower than December, are indicative of a strengthening market, with sales higher than normally expected for the time of year.” (Jan 17).

Bank of England: “The number of loan approvals for house purchase was 67,898 in December, compared to the average of 64,327 over the previous six months.” (Dec 16).

Kate says:
Most agents I spoke to at Christmas were concerned about going into 2017, but I can happily report that both the indices and conversations with agents show things aren’t as bad as expected, with both demand and supply doing well since the start of the year. The crunch will come when year on year reports start to compare Q1 17 vs Q1 16 which had the enormous price and volume boost from the stamp duty increase for second home owners. It’s likely this will be reported as a ‘problem’ in the market so could dampen people’s buying and selling spirits. This means it’s better to get offers under agents’ belts sooner rather than later to push through what sales you can prior to any media doom and gloom!