- House price expectations firm
- Market tightens as stock levels fall and sales levels rise
- Signs of a broadening in strength beyond the market in London
The November 2013 RICS Residential Market Survey underscores the recent firm trend in the sales market. The headline price balance (for England and Wales) reached +58, the highest reading since June 2002. Although the London price balance remains the highest by some considerable margin at +99, eight out of ten regions in England and Wales are now experiencing readings greater than +30.
Prices are rising on the back of tighter market conditions. Indeed, the headline sales-to-stock ratio rose to 34.5% in November, the second consecutive month above its long run average of 32% and the highest reading since October 2007. Not only are stock levels falling to historically quite low levels (a theme also evident in this month’s surveyors’ anecdotal comments) but sales levels are also growing. This is also mirrored by the survey’s new instructions and new buyer enquiries series; the former indicates the flow of property coming onto surveyors books has almost ground to a halt, while the latter shows that buyer interest is growing at close to the strongest pace in the survey’s record.
Several, possibly interrelated, factors have likely contributed to the stronger sales mood. First, thanks to a number of official policy initiatives (the Funding for Lending Scheme and Help to Buy), credit conditions for buyers have improved. This is not only evident in the fall in key benchmark mortgage rates but also in the pick-up in average perceived loan-to-value ratios, as measured in the survey.
Second, house price expectations over the short, medium and long term have risen sharply over the last twelve months. Indeed, the three-month price expectations balance increased to +59 in November, the highest reading since September 1999. Meanwhile, prices are expected to increase, on average, by 3% over the next year (up from 0.1% last December) and by almost 5% per year for the next five years (up from 2.5% last December).
The Bank of England’s decision to terminate the household element of the Funding for Lending Scheme was only partially covered by November’s survey response given the announcement’s timing. Whether this decision has much impact on pricing and activity remains to be seen, but any such impact is likely to depend on expectations (through the Bank’s signalling effect) as well as on lending.
With momentum in the housing market shifting up a gear in recent months, activity in the rental market has slowed, and quite markedly since the Government’s announcement to expedite the second arm of Help to Buy. Indeed, tenant demand and new landlord instructions (on a monthly non-seasonally adjusted basis) at the national level have almost ground to a halt, while in London, both are now falling.
However, the slowdown in lettings activity has yet to filter through to medium and long term rent expectations, which remain relatively constant. Surveyors still expect rents to increase by about 2% over the next year and by about 4% per year over the next five years. The survey’s regional data indicate that expectations for rents are more evenly spread than for house prices, with London properties much closer to the average.