Conditions across the UK housing market over the last month have been steady rather than spectacular, with a flurry of activity in different parts of the country. Mixed market messages and price volatility are still causing a level of confusion, in turn restricting any significant momentum whilst buyers and sellers alike try to understand what is really going on and how it affects their property plans in 2017.
Hesitant sellers buoy average prices
The overall supply of sales stock remains very low nationally, and January marked the eleventh consecutive month without any improvement in the volume of homes for sale according to RICS. This means that the average number of homes for sale on estate agents’ books remains close to historic lows, which nationally fell to 51 properties according to Rightmove – 4% lower than 12 months prior.
Such dwindling stock levels has had the effect of underpinning sale values due to the resulting demand/supply imbalance. All of the major house price indices recorded that average house prices have continued to rise over the last quarter, but of note is the rate of climb which is steadily falling. Halifax registered the first monthly price fall (-0.9%) in four months, suggesting that ever spiralling prices are now meeting resistance from affordability issues.
This message seems to be filtering through to new sellers entering the market too. Average asking prices were up by 0.4% last month, which although is the first tentative rise in three months, it is still lower than 12 months prior. However, this data masks the fact that it is the first time buyer sector of the market that is driving this growth, with average asking prices rising 2.6%. In contrast, at the top of the market, average asking prices were 0.2% lower, reflecting the value sensitivity that exists in this price range.
Banking on growth
As seen from the chart below, house price growth is heavily intertwined with economic growth, and accordingly an announcement by the Bank of England that it has revised its forecast and expects the economy to grow by 2% this year will come as welcome news. Citing domestic demand as being stronger than expected, and there being relatively few signs of a slowdown in consumer spending after the Referendum, the Bank’s latest Quarterly Inflation Report provides a more bullish reading of the economy than many analysts had predicted.
The future direction of interest rates will also have an important bearing on the vibrancy of the housing market, and Governor Mark Carney remains non-committal on this point.
Asked whether an interest rate hike or a rate cut would be the more likely course of action moving forwards he said that “we can see scenarios in either direction”.
Home repossessions are closely linked to rates. New Council of Mortgage Lenders data reveals fewer homes were repossessed last year than in any year since 1982, with a total of 7,700 UK homes repossessed compared with 10,200 in 2015.
The Government’s eagerly anticipated Housing White Paper has now been published, titled ‘Fixing our broken market’. The report focuses on all sectors of the market and puts forward a series of proposals aimed at ‘breaking down barriers’ of affordability created by house price and rent inflation, outpacing wage inflation for so many years.
Inevitably, subjects such as increasing the supply of new homes being built and associated planning reforms were highlighted but, in a change of policy stance, the paper also declared that home ownership may no longer be a realisable goal for some. Therefore, the rental sector should fall under fresh scrutiny with ideas such as family friendly longer fixed term tenancies being introduced. Whilst the paper is ultimately a series of proposals rather than policies, the impact on certain sectors of the market could be profound if implemented.
Structural changes to the market by government intervention will take time to filter through before making a noticeable difference. In the meantime, market forces underline how the market is becoming more value led, based on different pricing cycles, which is triggering a change in regional fortunes.
A trend first seen in London is now rippling through to other parts of the country. Regions that have been experiencing some of the highest rates of price growth over the last few years are now recording lower rates of price movements. Sales transaction volumes in parts of East Anglia and the South East are falling. Equally, locations which have underperformed for many years are now experiencing increased purchaser demand. With significant inward investment into the North West it now appears that it is the region’s time to shine in 2017, with Manchester recently recording its fastest rate of price growth in 12 years and Liverpool also following a similar trend.
This emerging trend is likely to resonate for much of the year ahead; as increasingly price conscious buyers evaluate and understand where they can make successful purchases which achieve their property goals.