After one of the hottest July’s on record since 1910, the property market has by contrast over the last month, started to lose some of the heat seen earlier in the year.
High levels of monthly price growth and somewhat frantic conditions have given way to calmer and more rational market conditions. However, this relatively swift change has brought a flurry of inevitable media stories, caution and even confusion in some cases.
Indices begin to align
Over recent months national house price indices have reported conflicting data. During the last month we have seen a consensus of opinion starting to form, suggesting that the rate of price growth is slowing, or in some locations prices are falling. Both Nationwide and Hometrack reported last month a near flat 0.1% increase in sale values, with Hometrack highlighting that this was the lowest monthly price change for over twelve months, and the third month in a row that the rate of growth had fallen.
On a year-on-year basis, the market remains robust, with sale prices rising at a rate of just under 12% nationally, while London has risen by 25% in the same period.
The monthly slowing of price growth is now widely considered an emerging trend rather than mere blip, and accordingly Garrington has already seen a change in buying patterns, and a switch in pricing strategies by some sellers and their agents.
Tough at the top
The super prime market (over £5M) has historically been disconnected from the rest of the market, particularly in London, and was the first sector to quickly recover after the credit crisis. This is due to its unique driving forces that are less affected by UK domestic issues.
Over the past 12 months prices have been slowly falling in the super prime London market, having been previously rising by up to 23% per annum. As recently reported in the Garrington London Market Review, there has been a 6.1% fall in the average sale prices in this sector compared with the same period last year.
This is partly down to lower numbers of Ultra High Net Worth foreign investors buying in central London, some of whom are waiting for the strong pound to ease and the looming UK General Election to pass, whilst others are concerned by the international political situation.
Fundamentals and sentiment
Market sentiment has traditionally been in step with economic fundamentals. During July we have seen this relationship being challenged, which in turn has caused a degree of confusion in the market.
At a macro level, inflation has remained close to Bank of England target levels, unemployment is falling, the IMF has predicted that Britain will have the fastest growing economy in the world this year and the Office for National Statistics has confirmed that the ‘Great Recession’ is over, as GDP grew by 0.8% in the three months to the end of June – a level last seen pre-financial crisis.
The market at a headline level has been equally positive. At the start of the year the Council of Mortgage Lenders was predicting 1.14M house sales. During July they have revised this figure to 1.23M. Transaction volumes are increasing, with latest Land Registry data recording an average of 65,679 transactions per month, compared to 48,597 per month during the same reporting period last year.
So why are we seeing a change in price growth rates and hesitation creeping back into the market? Garrington believes that this is being triggered by a combination of weaker sentiment amongst buyers, their resistance to spiralling prices and restrictions on mortgage loan amounts taking effect.
In addition, more sellers are now entering the market and have to compete from a shrinking pool of buyers. The volume of new property entering the market over £500,000 has recently risen by nearly double the rate of property priced between £250,000 and £500,000 according to recent research.
Which way next?
In coming months we are likely to see a less dramatic upward swing in house prices, and greater balance between buyers and sellers. Broad-brush strokes of optimism can no longer be applied to the market in its entirety, as it becomes increasingly polarised and complex in nature, as local factors influence price movements.
The speed of change in sentiment over the summer months may catch out some buyers and sellers, who run the risk of overpaying or not selling as we approach the autumn market.
Such market conditions firmly underline the importance of having up to date and accurate information before committing to a transaction