As we approach the midpoint of 2024, there is a feeling that we are approaching the end of an unenjoyable rollercoaster ride - stomachs churning, slightly dizzy, and wondering why we were ever on the ride in the first place.
In the 18 months leading up to October 2022, CPI inflation soared from 1.5% in April 2021 to 11.1% in October 2022, only to drop dramatically back to 2.3% in April 2024, leaving households and businesses reeling from increased costs due to inflation and the impact of accompanying increase in interest rates, which have now settled at 5.25%.
The shock has impacted the housing market on a macro and micro level and it is important to note that whilst inflation has come down, prices are still increasing, albeit at a slower rate.
For almost two years, between April 2021 and June 2023, CPI inflation was higher than wage inflation, meaning the recent property market has been largely supported by “necessity sellers” (divorce, debt, death), cash-rich buyers or those with large deposits.
Interest rate rises have created further fragility in the market, with sellers putting off moves, buyers pulling out of transactions, or renegotiating prices and estate agents left feeling the wounds of longer transaction times with greater uncertainty.
In their April 2024 Housing Insights Report, Propertymark reported that there was a 14% increase in the number of market appraisals being carried out by member branches, with agents experiencing a 20% increase in new property instructions on the previous month.
Likewise, the average number of new prospective buyers registered per branch increased to 88 in April 2024; the highest number in the last 12 months.
Whilst this renewed activity is early, it will be welcomed by all industries in the home moving business; conveyancers, estate agents, mortgage brokers, and removal companies alike. The hope is that this greater market activity will now continue for the remainder of the year, without dramatic fiscal intervention from the result of the upcoming general election.
Even before the height of uncertainty, transactions have taken far too long to complete. For over a decade, various initiatives and technologies have promised to tackle the issue of long transaction times. In 2017, transaction times were around 10-13 weeks. In 2022, transaction times reached 22 weeks. Today, average transaction times are closer to 26 weeks. For all the effort, the problem is getting worse.
Some of this increase could be put down to external influences (e.g. COVID), reduced workforce capacity and streamlined services, but these reasons provide little comfort when you consider that if an estate agent has an offer agreed on a property on 1 January, they will have to wait until 1 July to receive payment of their fee.
As with all transactions, pricing is critical. Propertymark’s latest housing insight report shows that whilst the gap between the seller’s asking price and market expectations is narrowing, it is still significant. Almost 80% of all transactions are selling for less than the asking price, with less than 10% selling for more than the asking price.
With 62 days on average needed to find a buyer before the legal process even begins and properties that need a price reduction taking more than three times longer to sell than those that do not, pricing has never been more critical to ensure transactions are fast and certain.
Given the general consensus that house prices are unlikely to rise significantly over the next 12 months, managing seller expectations with accurate and fair pricing from the start has never been more important.
In a market where estate agents face rising costs and downward pressure on fees brought about by competition from new entrants and online incumbents, cash is key and the ability to earn fees faster has a dramatic impact on an agent’s ability to grow and take advantage of a market that is showing signs of recovery. Auctions provide a tried and tested solution to this issue.
With transaction times of around 5-6 weeks on a consistent basis, auctions rely on upfront preparation of legal documents, open house events and defined bidding timeframes. This means that if an estate agent is instructed to sell by online auction on 1 January, they will receive their fee on 5 February.
Of course, online auctions are not going to be appropriate for every single property and it is critical that the right method of sale is offered to the vendor. That said, if 15-20% of all properties were to be sold by online auction per year (a recognised ambition in the auction sector), that would go a long way towards ensuring financial security for estate agents, whilst helping time-sensitive sellers achieve the best possible price in the shortest possible time.
Due to the nature of an instant exchange and competitive bidding, the auction market can spot wider property trends a few months ahead of time and the future looks positive. Uncertainty is giving way to green shoots of activity and the summer election could be the catalyst for renewed growth.
From conversations we are having with estate agents across the country, large and small, rural and urban, seller and buyer appetite is increasing.
