Monthly Market Review – February 2013

After a positive start to the year, the UK property market has continued to build momentum throughout February, albeit not at the same unseasonal rate as seen in January. Market data collated during February records positive price movement amongst most of the significant market indices.

Wider sentiment also appears to be improving, with investors in the UK and USA having reacted positively to better economic news, with the Dow Jones Index reaching a new high, and a strong performance from the FTSE 100 despite the loss of the UK AAA Credit Rating.

Market performance

Halifax led the reported price gains in February, recording 0.5% growth, whilst Nationwide’s House Price Index recorded a rise of 0.2%. Hometrack also reported an increase of 0.1% – the first recorded growth by Hometrack for nine months. So on the face of it there is collective agreement amongst the house price indices that prices and the market in general are improving; is this a true reflection though?

To gain a more accurate understanding of market dynamics it is prudent to consider quarterly trends. Over the last 3 months Halifax and Nationwide recorded price gains of 1.9% and 0.6% respectively. As seen in the table below, this trend comes after a sustained period of modest growth, confirming that, notwithstanding monthly price fluctuations, a gradual sustained recovery appears to be under way.

Prime country market poised for spring

Despite a flurry of early ‘off market’ transactions taking place during the first two months of the year, there remains a distinct lack of quality, correctly priced homes in the country market. We are just starting to see this trend improving ahead of the spring market. Garrington’s South East office has been advised by one country house agent that they have over 30 new instructions being readied for launch in the coming weeks, a trend seen across many of the prime regional markets in which Garrington operates.

Fundamental to whether this wave of new stock translates into transactions is correct pricing. Rightmove reported in February that asking prices for new stock entering the market has increased by 2.8%. Garrington believes that whilst market conditions are improving, buyers remain cautious and price sensitive, and overzealous pricing by sales agents and vendors could cause the spring market to falter.

Supporting the country market, Garrington is also seeing more international buyers active in the Home Counties prime markets, where they now account for 47% of transactions compared to 26% in 2010. They are attracted by a weaker pound and already reduced asking prices, which on average remain 16% below their 2007 peak.

London and southern regions in demand

Based on data released by Hometrack in February there remains an increasing divide between the northern and southern regional price movements. As illustrated in the graph below, survey data from 1,250 sales agents shows that 14.8% of postcode districts across the UK reported an increase, of which 74% were in London and the South East. Garrington believes that the lack of new stock is, and will continue to, underpin prices in these locations – particularly in the prime sector of the market where the trend is more acute.

London buyers looking for investments and primary residences remain active in their pursuit of the perfect property, but equally are increasingly wary of paying over-exuberant asking prices, with values having already risen 53% since March 2009 according to one recent London sales agent report.

Spring outlook

Clearly the above data, coupled with improving credit markets, is good news for buyers and sellers alike, but the effect of wider economic issues cannot be ignored. Inflation looks set to remain stubbornly high for the rest of year which will affect disposable income. Equally the economy remains fragile and economic growth remains anaemic in contrast to pre-recession levels, although this should mean that interest rates stay at historically low levels for much longer than originally expected.

Of central focus moving forward into March will be whether buyers accept price levels being set on new stock entering the market, and in turn whether transactions are increasing, causing momentum to gather in the market. Equally the forthcoming Budget on March 20th will be a key event that could have an impact on the vibrancy of the housing market.

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