Transactions are telling

Behind the house-price hullabaloo, Kate Faulkner says we need to look at transactions to show the real state of play.

With all the noise over the last few weeks about property prices falling from Halifax (-4.6%) and Nationwide (-5.3%) I thought it would be useful to have a good look at what’s happening with property transactions, which is much more dramatic.

There is plenty of different transaction data being reported from mortgages to properties sold subject to contract and finally sold. And for anyone looking for a big headline, it’s looking scary from a year-on-year perspective.

Sales over the last two years were much higher than normal. 2023 was never going to be great.

HMRC transactions

Non-seasonally adjusted figures are down 22% relative to July 2022, whilst seasonally adjusted figures are down 16%.

Mortgage transactions

The number of mortgage approvals seen during the first six months of this year totalled just 291,578, 29% less than the 410,244 approvals seen during the first half of 2022.

But! There is no point comparing sales from 2023 to 2022 or 2021

For anyone forecasting this year, hopefully everyone appreciated that sales over the last two years were much higher than normal and 2023 was never going to be a great year from a transaction perspective. Savills has predicted 870,000 sales versus the norm of 1.2 million, while Zoopla were more positive with a view that 1mn sales would be achieved. This would be a forecast of 17% or 30% – a big difference!

Up until base rates hit 5%, according to Christopher Watkin and TwentyEA’s data, sales, when compared to more ‘normal year’ averages of 2017 to 2019 were down by pretty consistently by 6%. However, as soon as rates rose to 5% and now to 5.25%, sales starting dropping year on year quite dramatically.

Analysing their data (updated a week in arrears) sales from July 2023 were 7-8% down while August saw higher falls between 11-14%.

If we assume a fall of 6% versus the 1.2 million ‘norm’ up until the end of June and project forward a 15% fall from July to the end of the year, that would mean transactions could achieve 1.1 million, higher than both Zoopla’s and Savills predictions. However, it’s probably right to expect that Zoopla’s forecast of 1mn transactions this year will be accurate, meaning we are in for a tough rest of the year transaction wise.

Transactions depend on buyers, affordability and property type

The difficulty is, just like with prices, some areas are suffering a lot more than others. Feedback I am getting ranges from ‘we are still doing OK’ through to ‘the market is dead’. The reasons for this vary, but they depend on affordability, levels of mortgage activity versus cash buyers in an area and the type of buyer, be it first timers, movers or investors.

Who is still buying and what property types are they looking for?

Nationwide have some great data this month explaining what’s happening in more detail – comparing cash to mortgage transactions, looking at who is buying and what property types are doing well.

For those who have been through difficult property market times before, it will be no surprise that cash transactions are, according to the Nationwide “more resilient”. They are reporting that in the first half of 2023 the number of completed transactions were:

  1.  Nearly 20% below pre-pandemic (2019) levels
  2. 40% lower than in the first half of 2021 (although this was a higher than average year for property transactions)

This is very much mortgages though, which have fallen much more than overall sales. The chart below shows how cash buyers in the first half of this year are slightly up versus 2019, while first time buyers have fallen the least, followed by BTL investors and home movers.

In terms of property type, Nationwide analysis shows “For owner-occupiers buying with a mortgage, there has also been a modest shift in the type of properties being purchased. While transactions are lower than pre-pandemic levels across all property types, the biggest decline has been in detached houses.” And as a result the buyers that are still active are coping with the higher mortgage rates by looking at “smaller, less expensive properties.”

Really understanding the market, who is buying and who is still selling is crucial for the industry this year. Taking on properties that are not likely to have a buyer or are overpriced will be too costly, especially for agents. Targeting cash buyers and first-time buyers with smaller properties may be the key to keeping things going this year – but as always it depends on your area!

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