Property News

Property Market Activity Continues to Weaken

Rose Jinks - March 9, 2018

The latest Residential Market Survey from the Royal Institution of Chartered Surveyors (RICS), for February 2018, provides little sign of any material shift in sentiment amongst respondents, at least as far as the headline figures show. Critically, indicators to future property market activity for the whole of the country remain subdued.

For example, the RICS New Buyer Enquiries series, which is a good indicator of Bank of England mortgage approvals, fell for the 11th month in a row, by 16%. Meanwhile, the Newly Agreed Sales net balance, which leads official transaction data, dropped by 17%.

This would appear to suggest that the Government’s attempt to breathe fresh life into property market activity, through abolishing Stamp Duty for the majority of first time buyers in last year’s Autumn Budget, is not having a significant impact on overall housing demand.

Alongside ongoing concerns about affordability in some parts of the country, part of the problem may lie in the lack of choice of property to purchase, with the RICS’s New Instruction indicator dropping once again, and by the biggest margin on a seasonally adjusted basis (by 24%) since May last year. This has pushed the average level of stock on agents’ books (per branch) to a new record low of just under 42.

Property Market Activity Continues to Weaken

Property Market Activity Continues to Weaken

For the time being, respondents remain more sanguine about the medium-term prospects for transactions, with the 12-month RICS Sales Expectations series in positive territory for the fourth consecutive month, and at its best level since February 2017.

Whether this improvement can be sustained will, in part, depend on whether more housing supply comes onto the market. One reason for caution is provided by the number of valuation appraisals being undertaken at present; in February, 15% more respondents indicated that this was lower (rather than higher), compared to the same month last year.

In another sign of increasingly challenging market conditions, the average time for a sale to complete (from listing) has continued to edge upwards. This series was introduced in the RICS survey at the beginning of 2017, when it typically took around 16-and-a-half weeks for the whole process to complete. This has since climbed to around 18-and-a-half weeks.

Unsurprisingly, there is a regional dimension to the property market activity results, with RICS’s New Buyer Enquiries figures (taking a three-month average) continuing to rise in Scotland, Northern Ireland, Yorkshire and the Humber, and the north. The most negative results were in the East Midlands, London and the South East, with the trend in most other regions broadly flat.

Meanwhile, the national RICS Price Balance measure came in at zero. This is the ninth month in a row that the reading for this series has been recorded at somewhere between zero and 9%, pointing to very little change in house prices over the coming months.

The near-term RICS Price Expectations indicator (for the next three months) tells a broadly similar story, although there is, as with sales, a suggestion that prices could resume an upward course a little further out; the 12-month Price Expectations net balance was slightly higher than in January, at 39%.

The disaggregated price data also shows stark regional variations, with the price readings particularly strong in Wales, the North West, Northern Ireland and the East Midlands. By way of contrast, feedback on prices remains negative to a greater or lesser degree in London, the East of England, South East and the north.

In an additional question included in the survey, respondents were asked about the key factors driving demand for new build homes. At the national level, the main driver appears to be the lack of stock in the second-hand market. This is followed by the appeal of the Help to Buy scheme, with developer incentives and the quality of new homes scoring more lowly. The one region where the results are slightly different is London; the shortage of stock is viewed as a major influence, but Help to Buy is considered even more important.

The longer-term indicators for house and rent prices (over the next five years) continue to suggest that the former will increase at a slightly slower pace than the latter, although, in both cases, they point to growth of around 15%, which would suggest an acceleration towards the end of this period, given other readings from the study.

Russell Quirk, the Founder and CEO of hybrid estate agent, comments on the report: “It’s important to note that only a tiny proportion of RICS members are actually estate agents, and so their views aren’t entirely typical of the overall industry.

“The market has certainly slowed to an extent, but, while some are noticing a reduction in buyer enquiries, their experience isn’t completely representative of the wider market. Halifax reported yesterday that UK home sales exceeded 100,000 transactions for the 13th consecutive month and there was a notable uplift in mortgage approvals, so there is definitely still a big appetite for UK property.”

He continues: “We, for one, have recorded a consistent level of buyer demand across the last year, so perhaps talking the market down is easier to stomach for the average traditional agent while they continue to lose market share as the industry evolves.

“A dwindling index of stock alongside sustained buyer interest suggests the market is in better health than many are giving it credit for. Properties simply aren’t staying on the market for long and this interest, coupled with low supply, will see prices remain on their upward curve as the market continues to favour UK home sellers, not buyers.”