According to the latest market analysis, a slight dip of 0.2% in asking prices during January may well have already factored in this month's further hike in the Bank of England base rate, which was widely anticipated. Further minor adjustments in asking prices may follow depending on the strength of demand, which typically increases in the spring months.
Stock levels are also continuing to recover following the buying frenzy seen during 2021 and early 2022.
Following a contraction in December, the total sales stock count for England and Wales swelled in January by nearly 16,000 to reach 369,053, although this total remains less than the 10-year average of 423,417 despite the recent additions.
Marketing times are also returning to pre-COVID levels, further indicating a return to more normal market conditions. The current Typical Time on Market for unsold property has increased swiftly over recent months to 100 days, but this figure is 16 days less than in February 2020.
The vital signs of the market are reassuring and counter the doom and gloom forecasts trumpeted by institutions and pundits that should know better. After all, real mortgage rates are still highly negative and this provides an unprecedented tailwind for the sales market. Moreover, the chronic housing shortage (both rental and sales) has not gone away. If anything, it has worsened due to supply chain problems and higher financing costs for builders.
Home suggests that the doomsters conveniently ignore two key factors, namely the vibrant rental market and a lack of oversupply in the sales market. The number of properties withdrawn from the sales market has been significant over recent months. Many of these will have been channelled into the rental market, which seemingly has an insatiable appetite for new stock and strong returns. This method of monetising unsold stock may therefore be regarded as a pressure release valve for the sales market should an excess of inventory become an issue.
The vital signs of the Greater London market are looking particularly encouraging. In stark contrast with the rest of the country, the capital did not benefit from the COVID boom. On the contrary, London suffered a serious slump in both sales and rentals. The rental market was the first to recover as tenants returned post-lockdown, resulting in spiralling rents and vastly improving yields.
Now the sales market looks set to show growth, given the very modest supply of new instructions, falling stock since November last year and, importantly, a Typical Time on Market that remains lower than in February 2022. Added to that, the median price of a flat remains 15% lower than it was in 2016, so there's plenty of room for capital gains.
Monetary inflation may have reduced slightly over the last two months but it remains exceedingly high. The latest hike in the Bank of England base rate may well be the last for a while. Meanwhile, mortgage rates have headed in the opposite direction with deals of 4% becoming plentiful (a clear indication that lenders expect the base rate to fall).
According to Home's analysis, we, therefore, look set to enjoy negative real mortgage rates for the rest of this year (perhaps longer) and this unprecedented situation will serve to support prices strongly. Home prices, therefore, look set to fall in real terms but not in terms of pounds and pence.
The annualised mix-adjusted average asking price growth across England and Wales is now 1.3%; in February 2022, the annualised rate of increase of home prices was 7.7%.
