Rightmove: “Buyer choice restricted as supply fails to keep pace with strong sales and buyer demand.”
naea | propertymark: “House sales up as buyers push through summer property transactions.”
RICS: “Uncertainty stifles market sentiment.”
Nationwide: “House price growth broadly stable in July.”
Halifax: “Annual house price growth eases to 2.1 per cent.”
LSL Acadata HPI: “Prices cool for summer as north-south divide re-emerges.”
Hometrack: “Annual growth rate of 5.1 per cent to June 2017.”
Average prices across the indices vary from mortgaged only prices from the Nationwide HPI (July 17) of £211,671, through to marketing prices (ie not necessarily sold) from Rightmove (July 17) of £316,421, a 50 per cent difference. Average sold prices from the UK HPI stand at £237,662 (May 17).
Thirteen cities have a lower annual growth rate than a year ago. London, Bristol and Oxford have recorded the greatest slowdown as affordability and uncertainty impact demand.
The most fascinating figures in this table are the annual average changes from 2005 to 2017, showing that for mortgage properties, price inflation each year has barely kept up with consumer price inflation (2.9 per cent vs 2.8 and 2.5) – when in the past it has always beaten it by some distance. For properties including cash sales, it is still slightly higher with the UK HPI showing 3.4 per cent and the LSL Acadata HPI at just over 4 per cent. However, this is much lower than pre 2005, when prices would typically double every 10 years. Although the headlines are talking about ‘low stock rates’, ‘easing’ and ‘stability’, it’s clear that the 2017 year on year growth we are seeing now reflects these long term annualised rates over the last 14 years. And, as we explain later, these lower rates of growth appear to be here to stay. The key point to note from this is that I don’t think the public or indeed investors have appreciated this major shift in national property price growth fortunes and what we need to be prepared for is what happens when they do – ‘en masse’.
RICS: “The London data, largely picking-up the prime market, continues to show no real easing observable in the pace of decline (of prices). The price balance is now more subdued in both the South East (which also better captures the mainstream market within the capital as well as the wider region) and East Anglia whilst the North continues to show little change from recent readings. However, surveyors in Northern Ireland, Wales, West Midlands and the North West reported price increases.”
LSL Acadata HPI: “Six out of ten regions have seen an increase in their annual rates from the previous month, with one recording no change. Price rises are led by the East of England, where prices in the region are up 6 per cent annually, driven by strong growth in Norfolk, Luton and Bedfordshire. Annually, prices are up 4.9 per cent in the West Midlands and 5.4 per cent in the South West. Wales has fared less well, with prices up just 2 per cent annually. Overall, annual price increases in May in England and Wales stood at 4.3 per cent but a North-South divide seems to have re-emerged. Annual growth in the Midlands and South, excluding London, is above average, and the North and Wales are seeing below average growth.” Hometrack: “Thirteen cities have a lower annual growth rate than a year ago. London, Bristol and Oxford have recorded the greatest slowdown as affordability and uncertainty impact demand. The rate of price falls in Aberdeen has slowed sharply. House price growth is higher in seven cities, but the scale of the increases compared to June 2016 are more modest. The exception is Edinburgh where the rate of growth has bounced back from 1.8 per cent a year ago to 6.5 per cent today.
It’s crazy really that with property price changes varying from -45 per cent over the last 10 years in Northern Ireland to -2 per cent in Scotland, no change in 10 years in Wales and a 22 per cent uplift in England, that the indices and therefore media headlines talk about prices ‘easing’ and ‘slowing’. By English Region, we are seeing growth rates year on year range from +1.6 per cent in the North East through to in excess of 7 per cent growth in the East and East Midlands, and for different towns and cities ie Leicester, Nottingham and Manchester we’re seeing over 7.5 per cent growth. So to try and describe ‘one market’ currently is, in my view, an extremely out of date concept and these headlines can only be described as inaccurate and misleading as they apply to few, if any areas across the UK.
The indices and media need to come up with a much better way of portraying such a varied performance in the market moving forward if buyers, sellers and investors are going to be given a true reflection of what’s happening in their area. Better still, we need to ensure that rather than read or listen to these headlines, people sign up to their local agent newsletters and property price (and rental) reports and read cost effective local media reports. A marketeer’s dream scenario for agents, brokers and legal companies to take on board.
The good news from the city data though is that most cities are now seeing double digit growth since the credit crunch, suggesting more are able to move than perhaps in the past due to enough equity growth to help them fund a second or third step, or even downsize.
Most commentary focuses on what is happening to property prices, but 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 June 2017 in England & Wales is estimated at 72,500, based on Land Registry numbers and their methodology for accounting for domestic property sales. This is up by 10 per cent on May’s total, and is marginally ahead of the typical seasonal increase of 8 per cent that we would expect in June, based on averages from the last 20 years.”
NAEA Propertymark: “The number of sales agreed per branch rose from 10 in May to 11 in June – as buyers pushed through their property purchase before the quieter summer months. Three in 10 properties sold in June were to FTBs, the highest amount recorded since January.”
Bank of England: “Approvals for house purchase were little changed in June at 64,684, around 4,000 lower than in January. Approvals for remortgaging ticked up to 44,548 in June, similar to numbers seen earlier in the year.”
BBA: “House purchase approval numbers in May of 40,347 were 3.3 per cent lower than May 2016 and slightly down on the monthly average of 41,923 over the previous six months.”
PROPERTY DEMAND AND SUPPLY
RICS: “Respondents recorded a decline in newly agreed sales consistent with a fall in transactions, the fourth consecutive negative reading and reflects both a lack of stock coming on to the market and a more cautious stance from buyers over recent months. Significantly the new instructions indicator fell too; the sixteenth month in a row that more contributors have indicated property coming into the market has dropped (rather than risen). Average stock levels have slipped (marginally) to a new low.
“Transactions in the near term are expected to remain broadly stable. Meanwhile, there is now also a little more caution in terms of the outlook for sales growth over the next twelve.”
The transaction data shows how hard the property market is to navigate and manage as an industry. Falls of 50 per cent in transactions in any business over the credit crunch, followed by huge increases in demand from 2013 (for some areas) due to the previously subdued recession activity. Now what we are effectively seeing in 2017 is this market resurgence running out of steam and perhaps more steady times ahead. This is good news for those trying to manage their business from a cash, investment and particularly trained staff perspective as it’s better to have a market that is lower in volume but stable than one that increases dramatically one year then falls by 24 per cent as it has in Greater London in the last 12 months (LSL Acadata HPI).
This chart compares the different property expert forecasts for 2017 versus actual price growth recorded by UK HPI and Nationwide.
The forecasters so far have either predicted a worse market than we are actually experiencing or a far more buoyant one. In reality, performance to the half year is somewhere in the middle.
Some parts of London, particularly at the top end have seen property prices go into reverse – albeit after seeing prices almost double since the recession. While other areas expected to see a fall such as the North, Wales and Scotland according to Savills, have actually seen growth rates of a few to 4.4 per cent.
The South West and East Midlands through to the East of the country have perhaps performed much better than the forecasters suggested, with expected growth being minimal by most forecasters, whereas rates of 4 to over 7 per cent have been achieved.
The most accurate appears to be for the North East where minimum growth of just over 1 per cent has been achieved versus forecasts of a -2.5 per cent to a 3 per cent were predicted. Wales and Scotland forecasts have seen similar success.
Bearing in mind the enormously complex property market picture and the speed which property prices can turn up and down, it’s impressive that the forecasters get anywhere near close to the actual results and of course, we are still only half way through the year.
So far, the market, despite the slowdown, is actually performing at a rate better than forecasters predicted in recent times, although slightly behind some of the older forecasts from Chestertons and the NAEA.
In my view, although Brexit, affordability and increased taxation are all being blamed for the slowdown, I think the key reasons for the easing in the market, where that is happening, is due to normal market activity over time. We saw huge falls during the credit crunch, followed by huge rises as the market recovered, followed by a more stable market as demand and supply starts to match over time. However, I accept that government intervention in the market is making things worse (rightly or wrongly) in that the prime market is suffering due to higher stamp duty levels and that in areas such as London, the South East and East we are seeing more than expected slowdowns due to a loss of landlord purchases and in some cases, affordability issues due to restrictions on 4.5x income spending.
Savills: “Brexit has forced the market to change gear and created uncertainty. Against this new backdrop, our forecasts are for slower growth. Although we are expecting economic growth to remain positive, households will face weaker income growth and there may be some job losses over the next two years. The period of negotiation with the EU is likely to be a rollercoaster of confidence, with volatile sentiment indicators and lower levels of business investment.
“As importantly, the amount buyers are borrowing relative to their incomes is already stretched in some parts of the market. In particular, it is bumping up against the limits of mortgage regulation in London. While falling mortgage interest rates will create some capacity for house price growth over the next two years, buyers are unlikely to want to stretch their finances much further in uncertain times. So it is difficult to see any significant potential for house price growth until the terms of the withdrawal from the EU are agreed and economic growth picks up.
Knight Frank: “The headline rate of house price growth across the country has been slowing since summer last year, transactions have also fallen from recent peaks. There are several factors at play behind the recent slowdown in market activity – not least a lack of available homes to purchase. This has increased focus on the delivery of new-build homes across the country.
“The shortage of housing stock available to buy coupled with ultra-low mortgage rates have put a floor under pricing across the UK, but the question of affordability is becoming more pressing in some areas, especially as lenders still expect sizeable deposits from buyers. As the UK moves closer to Brexit, any economic uncertainty could have a knock-on impact on the housing market, especially if wage growth and employment levels across the country are affected.”
RICS: “The five year expectation series show some moderation in perceptions as to where prices and rents are likely to go over the medium term. For prices, the latest reading (using a three month moving average) points to an average annual increase of 3.2 per cent in each of the next five years while for rents the comparative figure is 3.6 per cent. Although these projections remain above the likely increase in average earnings over the period, they are lower than recent readings suggesting that affordability issues may be impacting on expectations.”