Simon Rubinsohn, RICS Chief Economist, comments on the latest findings from the Residential Market Survey:
"UK house price growth posted the lowest survey reading in three years in July. Just 5% more respondents nationally saw a rise rather than fall in prices, a downward trend that is evident across the UK. The London price indicator remains more downbeat (net balance of -33%) which is broadly consistent with an outright drop in prices in the capital. As price growth slows for now, near term price expectations across the UK were negative for the third month in succession with 12% more respondents predicting a decline in house prices over the next three months.
As activity falters, interest from new buyers in the UK also continues to wane, with the results showing a fourth consecutive month of falling demand (net balance of -27).
The need for more houses
Lack of stock in the housing market continues to cause ripples, with new instructions falling again in the month of July. 33% more respondents to the survey have seen a fall in new instructions and supply is at or around record lows in most parts of the UK. In line with the dip in demand and the worsening supply position, sales declined sharply. Across the UK, 34% more respondents reported a fall in transactions, with the monthly pace of decline in both July and June at the fastest since 2008.
This reflects a continuation of a trend that started back in April following the implementation of the tax surcharge on investment purchases. Anecdotal reports provided by contributors to the survey suggest both the tax change and the ongoing fall-out from the EU referendum are contributing to the current mood in the market. However, looking into the comments left by members suggests conditions vary markedly between agents. A large portion of respondents note, after an initial wobble, activity has returned to normal, while others feel Brexit has only had a very modest or negligible impact.
Year ahead
Significantly looking a little further out, key RICS indicators are up in July from June and show both sales and price expectations at the 12-month time horizon returning to positive territory, albeit relatively modestly so and well down on the numbers recorded through 2015 and the early part of this year.
The housing market is currently balancing a raft of somewhat mixed economic news alongside the latest policy measures announced by the Bank of England, which have already begun to lower cost of mortgage finance. Against this backdrop, it is not altogether surprising that near term activity measures remain relatively flat. However the rebound in the key twelve month indicators in the July survey suggest that confidence remains more resilient than might have been anticipated.
Critically, it is hard to escape the stark message regarding supply that is evident in the latest set of results with RICS data showing inventories on agents books around historic lows on average. This is a long running story that may have been exacerbated by recent events but clearly needs urgent action from the new government."
Andy Sommerville, Director of Search Acumen, comments: “Today’s figures are one of the first indicators of the industry’s perspective following the Brexit decision and, although there has been a significant fall in activity in the past three months, the decline is one of smaller proportions than many were expecting. After the sharp initial fall in the midst of the Brexit vote, July’s survey shows that interest in the property market has continued to decline for the fourth consecutive month. However there is light at the end of the tunnel, and such doom and gloom in the sector could be coming to an end.
Looking forward, the Bank of England’s rate cut last week will come as positive news to the market as current and potential homeowners will look to benefit from the attractive mortgage deals available. We anticipate the industry will start feeling this impact in the months ahead and we may even see a small surge in property transactions, especially as stability begins to return to the political system providing a more certain, investible future for consumers.
This being said, in the short to mid-term, it is likely that housebuilders will slow down output of new homes in the wake of Brexit uncertainty, forcing supply and demand figures even further apart. The knock-on impact of this could have much more profound long-term implications for the market than the monthly rise and fall in transactions.”
Randeesh Sandhu, CEO of Urban Exposure, said: “Today’s RICS Residential Market Survey backs up other recent evidence that the UK housing market is bearing some of the brunt of the Brexit vote in the immediate term. But looking further down the line, the survey also suggests agents have confidence that conditions will improve in the medium term, with twelve month price and sales projections edging back into positive territory.”
Reassuring comments in today’s survey from some agents that activity has either picked up after an initial wobble or that they have only felt a modest or even negligible impact thus far further underlines how the picture is not all gloomy as some commentators would have us believe, but in fact mixed. Market weakness may persist alongside continued uncertainty during the autumn selling season as the first major indicators of the impact of the EU referendum vote emerge.
We retain a positive overall view on UK housing. The survey results show inventory on agents books around historic lows on average further exacerbating the long term issues around supply and demand. This will require urgent government action to turn around, though will serve to underpin market fundamentals over the medium to longer term alongside the historically low interest rates since last week’s base rate cut and the availability of credit for those who are looking to buy.”
