Brexit + Election = slowing market

HEADLINES

Rightmove: “New price record, though lower than the average increase of 1.6 per cent at this time of year over the past seven years, and best sales since 2007 should mitigate pre-election jitters.”

naea | propertymark: “Supply of houses available to buy at lowest level for March since records began.’”

RICS: “Sales market still lacking impetus.”

Nationwide: “Annual house price growth slowest in nearly four years.”

Halifax: “Annual house price growth unchanged at 3.8 per cent.”

LSL Acadata HPI: “Eight of 10 UK regions record new peak average prices, with the West Midlands taking the top spot for regional annual price growth.”

Hometrack: “City house price growth is 6.4 per cent, up from 4.9 per cent at the end of 2016.”

KEY FACTS

Average prices across the indices vary from mortgaged only prices from the Nationwide HPI (Apr 17) of £207,699, through to marketing prices (ie not necessarily sold) from Rightmove (Apr 17) of £313,655, a 51per cent difference. Average sold prices in the UK HPI stand at £234,466 (Feb 17).

In our view, spending is likely to slow as rising inflation increases the squeeze on household budgets.

Kate says: I think this is probably one of the first years I can remember where we have seen a slowdown in housing market activity, yet we have not seen the normal ‘panic’ of house prices crashing in the media, bar the odd report.

This hopefully suggests that there is a better understanding of the fact that housing markets tend to ‘ebb and flow’ over time and also because over 50 per cent of people own their property outright, with 35 per cent of those buying now cash buyers, so are less likely to be affected by what is going on in the wider economy.

This is good news for the market as in the past news headlines could literally ‘stop’ people buying so they can ‘wait and see’ what happened and that could cause a slump in its own right, whereas since the credit crunch, markets seem to ‘move on’ whatever the stats tell us what is happening.

However, this doesn’t mean that the market isn’t going to be affected by what’s happening in the economy and politics over the coming months. Nationwide probably puts this best: “In our view, household spending is likely to slow in the quarters ahead (along with the wider economy) as rising inflation increases the squeeze on household budgets.

“This, together with mounting housing affordability pressures, is likely to exert a drag on activity and house price growth in the quarters ahead.”

All the indices mention the issue of poor stock levels, with naea | propertymark showing the lowest number of properties for sale since their records began in 2002. As a result, price growth is expected to slow, but not ‘collapse’.

REGIONAL DIFFERENCES

RICS: “The disparity between price trends in central London and the rest of the UK appears to have widened of late. When figures for the capital are excluded, price growth momentum has actually strengthened slightly since December. Within this, prices across the North West have been on a particularly firm upward trajectory. By way of contrast, the indicator in Central London has progressively deteriorated. In fact, at -49 per cent, the net balance across the capital was the weakest since 2009. Nevertheless, 14 per cent more respondents from London do anticipate prices will be higher (rather than lower) in twelve months’ time.”

LSL Acadata HPI: “The February 2017 figures show the West Midlands topping the charts for regional house price growth. The West Midlands has displaced the East of England – from the No 1 spot where it had been for the previous eight months – into second place. This is the first time the West Midlands has been the highest placed region in England and Wales since our records began in January 1996. Greater London has fallen back into ninth position in terms of regional price change, one place ahead of the North East which is in bottom position. This is the thirteenth month in succession in which the North East has seen the lowest rise in house prices of all ten regions. Yorkshire and Humber, Wales and the North East currently occupy 7th, 8th and 10th position in the regional price growth league.” (Mar 17).

Hometrack: “The impetus for faster house price growth is emanating from large regional cities such as Newcastle, Glasgow and Edinburgh with Newcastle. These cities have registered above average price increases over the first quarter of 2017. Manchester remains the fastest growing city covered by the index where the annual growth rate is 8.8 per cent followed by Birmingham at 8.0 per cent.

“Attractive affordability levels, record low mortgage rates and an improving economic outlook are all supporting demand for housing. Together with limited availability of stock for sale this is creating scarcity and an upward pressure on house prices. Price rises are not running away but house price growth is well ahead of earnings growth.

“In contrast, house price growth in London, Oxford and Cambridge has slowed to less than 5 per cent for the first time in five years as affordability pressures, and tax changes for investors, constrain demand. It is clear that in London sales are failing to keep pace with supply. Stock that is on the market will require downward price adjustments in order to sell.” (Mar 17).

Kate says: City house price growth seems to be topping the charts currently. Most indices talk about prices rising and reaching ‘record highs’ but this is on the back of growth which is much slower than it’s been for some time. The exception to this is the Hometrack’s City Index which actually reports quite robust activity in the ‘regions’. Since the credit crunch – a decade ago now – most of the regions outside of the South and East of England haven’t experienced great growth, particularly faster than the annual average. And although house price growth regionally isn’t seeing the double digit growth we saw in London and parts of the Home Counties and beyond, rises are more similar to the long term average growth of 7-8 per cent. And there are still plenty of areas that are struggling to recover to the house price levels achieved a decade ago. The North East, Wales, Scotland and Northern Ireland are all still showing prices lower than they were prior to the credit crunch. And although the likes of London and areas such as the East of England have seen their prices rise 30-60 per cent since the last market high, it’s not a surprise that these areas are now seeing a ‘natural’ slowdown as affordability bites.

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 March 2017 in England & Wales is estimated at 78,500, based on the Land Registry methodology of accounting for domestic property sales. This is a notable 26 per cent uplift in sales on February’s total, which appears high, but is in line with the average seasonal increase that takes place in March of most years.” (Mar 17).

naea | propertymark: “The average number of sales agreed fell in March, to 10 per branch. The proportion of sales made to FTBs in March rose to 25 per cent, up from 22 per cent in February.” (Mar 17).

Bank of England: “Approvals of loans secured on dwellings for house purchase and remortgaging both fell slightly for the second month, to 66,837 and 42,814 respectively, in March.” (Mar 17).

BBA: “House purchase approval numbers of 41,061 were 2.8 per cent lower than in February 2017 but in line with the monthly average of 41,600 over the previous six months.” (Mar 17).

Kate says: It’s difficult to analyse transactions currently due to government intervention in stamp duty and Brexit. However, it does appear that the more ‘amateur landlord’ is questioning whether buy to let is a wise investment moving forward and so demand is down. And although some reports suggest tenant demand is waning a little at the moment, the lack of new stock coming onto the market means the likes of the RICS and Belvoir are both expecting rental prices to increase, potentially even faster than house price inflation – for the very first time.

PROPERTY DEMAND AND SUPPLY RICS:

“On a UK-wide basis, new buyer enquiries were flat for a third successive month. When broken down, demand remains mixed across different parts of the UK, although the number of areas in which enquiries are reportedly declining continues to outweigh those with a positive trend. The strongest growth was again cited in Northern Ireland and the South West of England. Meanwhile, on a brighter note for London, buyer interest has now been increasing modestly over the last four months in succession. At the same time, headline sales instructions fell noticeably, following a similar pace of decline (in net balance terms) in both January and February. Stock levels on estate agents’ books have subsequently dipped to fresh record lows, with branches (on average) now holding only 43 unsold properties.” (Mar 17)

Kate says: With stock disappearing from the market fast, although this may continue to increase prices, it is really more stock that agents require. Many people seem to forget that a lack of stock is bad news for buyers, but in fact it is even worse news for agents. Unlike other industries, such as the car or health and beauty market, which if demand rises they can just produce more of what people want, agents on the other hand, are in a fairly unique position in that they are restricted to ‘sell what they have’ instead and then often blamed for not having enough homes and profiteering from the situation.

A lack of stock moving forward is probably the biggest threat to agents and for those that want to survive and thrive, making sure that they are taking instruction for the little new build that is coming through is essential to have enough homes for sale. This is especially true as first time buyers are helping to drive the market, partly due to schemes such as Help to Buy. Not being involved in new build sales could limit agency growth in the future.