KATE FAULKNER – A SOFTENING MARKET?
Average prices across the indices vary from mortgaged only prices from the Nationwide HPI (Nov 16) of £204,974, through to marketing prices (ie not necessarily sold) from Rightmove (Oct 16) of £305,670, a 49 per cent difference. Average sold prices from the UK HPI stand at £234,250 (Sep 16).
The market is softening and many agents are now seeing 2017 as being a quieter year from a transaction perspective. No more major policy changes (we hope!) are expected next year that will affect the market, such as increases in stamp duty or Brexit votes. However, it’s likely that attention will turn to the private rented sector instead when landlords potentially realise that buy-to-let investment is going to be increasingly tough to make stack up financially. This is likely to have a positive and negative effect on some areas – some landlords may sell, boosting transactions in the short term – while in others, we may just see fewer buyers, keeping property price inflation in check.
It’s interesting when you average out year-on- year changes since 2000, most areas/ towns have shown annual growth rates of 6 – 8.6 per cent, according to the government’s HPI index. But when you take into account property prices over the last 11 years – ie from 2005 – annual growth has almost halved from these levels. This suggests perhaps that at last property market price inflation will stop beating income growth. This should come as no surprise as it’s likely due to the government restricting lending levels at 4.5 times incomes and making affordability tougher with the Mortgage Market Review rules.
The market is definitely softening and many agents are now seeing 2017 as being a quieter year from a transaction perspective.
Although this may dampen the market in the short term – and all the forecasts suggest 2017 won’t be a good year and may even see some price falls – it is good news in the long run as the only way people can continue to transact in the property market is if prices are maintained at a more affordable rate. Although nationally and regionally the property market seems to ‘make sense’ from a trend, economic and policy perspective, it’s the local demand and supply factors which are impacting dramatically on the huge variations seen when looking at towns’ and cities’ year-on-year growth. Edinburgh is seeing the lowest growth of 1.9 per cent year on year, while Reading is maxing out growth at 19.2 per cent versus 2015.
From an agent perspective, this means it is important to work with the local media and public to ensure they understand what’s happening nationally and regionally and that this could be incredibly different at a local level.
As far as demand is concerned, anyone who needs to move is still doing so, but the huge changes to the tax system are causing
issues in higher priced transactions and also damaging the addition of buy-to-let stock for the PRS. LSL Acadata HPI, estimates that “the number of housing transactions in November 2016 in England & Wales will total 77,500, 14 per cent up on October 2016, but six per cent lower than the same month last year.”
From a stock perspective, slightly muted demand is good news to some extent, as we aren’t currently really seeing any growth in stock levels, despite government promises of driving more sales. According to Rightmove and NAEA, the average stock per branch doesn’t seem to be changing much and, according to the RICS, new supply hasn’t increased now for a full nine months, although they are picking up that buyer demand has edged up slightly over the last few months, with sales seeing modest rises.
In the meantime, despite the Government’s efforts to improve supply via new build in the private sector, the NHBC says this doesn’t seem to be impacting too well, while the affordable sector is starting to see some growth, but that’s not likely to translate into much extra business from an agent’s perspective.
Supply of new build property shows no real growth year on year.
- From August ‘16 to October ’16, the number of NHBC new home registrations was 37,591, compared to 37,177 for the same period last year.
- 27,877 were registered in the private sector, a six per cent decrease compared to last year (29,564).
- 9,714 were registered in the aff ordable sector, a 28 per cent increase compared to last year (7,613).
The NHBC report said that, “Our registration statistics show that despite concerns about the market in light of the vote to leave the EU, builders are continuing to commit to volumes in line with last year.”
RICS: “All areas except London and the North East reported growth. The London data (which tends to better reflect the market in the inner zones rather than the outer boroughs) recorded an eighth consecutive negative monthly reading with 16 per cent more respondents reporting a fall rather than a rise, while in the North East prices were reported to have remained broadly stable. The West Midlands and North West English regions reported the firmest price momentum this month.”
LSL Acadata HPI: “Strikingly, in October, of the 10 areas in England and Wales, Greater London had the lowest rate of annual house price inflation at 0.1 per cent. This contrasts with the position in March 2016, only some seven months earlier, when London had the highest rate of annual house price inflation of all the regions at 13.3 per cent. In October, the East of England region held on to its position as top of the ‘leader board’ for the sixth month in succession, with the highest annual increase in average house prices, at 6.6 per cent, driven by strong increases in the likes of Thurrock (up 16.2 per cent) and Luton (13.7 per cent).
“Rutland in the East Midlands recorded the highest annual growth this month, with prices up 23.2 per cent, this is largely the skewed result of relatively low transaction volumes. Thurrock and Luton, in second and third place, have been consistent performers, with good rail links into London making them popular commuter hotspots for those priced out of the capital. The South East has also proved robust, with prices up 5.6 per cent annually. Wokingham (up 12.4 per cent), Medway (10.5 per cent) and Brighton and Hove (9.6 per cent) have been the star performers there.”
Hometrack: “City level house price inflation is running at 8.4 per cent as the upward momentum in house price continues. Bristol remains the fasting growing city (10.6 per cent) but the rate of growth is slowing. Aberdeen continues to register a year on year price falls (-8.1 per cent). The impetus for house price growth is shifting from the affordability constrained cities in southern England to cities in the midlands and the north of England where affordability remains attractive. The year on year rate of house price growth across London has slowed close to its lowest level for three years (nine per cent).
“We expect growth to slow to low single digits in the next 6-12 months as demand softens in the wake of a raft of fiscal policy changes aimed at overseas buyers and investors as well as concerns over the impact of Brexit on the economy. The Hometrack Central London index which covers the top 5 per cent of the London market by value, is already registering 0 per cent house price growth.”
NAEA: “The number of house-hunters registered per branch rose by 32 per cent in October, to the highest level recorded since February this year when there were 463 prospective buyers on estate agents’ books. The number of sales made to FTBs in October (32 per cent) was the highest level recorded since records began in 2000.”
RICS: “Demand increased modestly at the headline level for the second consecutive month with a net balance of 10 per cent of respondents reporting growth. Most areas saw some rise in buyer enquiries with respondents in Northern Ireland reporting the strongest growth. Agreed sales rose very modestly with a net balance of 5 per cent of surveyors reporting growth and more areas seeing activity rise rather than fall Expectations for the months to come have improved slightly, with a net balance of 25 per cent of respondents forecasting a rise in transaction levels.”
LSL Acadata HPI: “The reduction in sales from 2015 to 2016 is being experienced across the country, albeit at different rates. The level of sales has fallen across all of England and Wales (Aug-Oct), although the decline is more pronounced in the South, especially in Greater London where volumes are down by -32 per cent YoY, almost double that of any other region, except for the South East where transactions are down by -21 per cent.”
Bank of England: “The number of loan approvals for house purchase was 67,518 in October, compared to the average of 63,914 over the previous six months.”
BBA: “Gross mortgage borrowing of £12.2bn in the month was four per cent lower than in October 2015. Net mortgage borrowing is 2.5 per cent higher than a year ago.”