Against the uncertain political backdrop and with the economy weakening, the RICS survey data point to a weak near-term outlook for the housing market. Indeed, with house prices already very high and set to stay that way, we don’t expect a recovery in house price growth or transactions anytime soon.
Housing market activity faltering
- Against the uncertain political backdrop and with the economy weakening, the RICS survey data point to a weak near-term outlook for the housing market. Indeed, with house prices already very high and set to stay that way, we don’t expect a recovery in house price growth or transactions anytime soon.
- Consistent with weakening demand, at minus 16%, the new buyer enquiries balance remained firmly in negative territory in October. (See Table 1.) And while the new sales instructions balance edged up from its three-year low of minus 37% in September, at minus 29%, home listings nonetheless fell.
- What’s more, there are signs of a slowdown in transactions. Sales per surveyor edged down from 12.7 in September to 12.3, the lowest reading since the financial crisis. Admittedly, the relationship with the official transactions data has, in recent years, weakened. But at minus 19.1%, the newly agreed sales balance, which has a better relationship with the hard data, also suggests that transactions are set to weaken in the coming months. (See Chart 1.)
- With the UK economy sputtering and ongoing political uncertainty weighing on buyer confidence, it is perhaps not too surprising that housing market activity is muted. And, with house prices already very high, the housing market fundamentals don’t suggest a rebound in activity is on the horizon. Granted, competition between lenders has led to a decline in mortgage interest rates more recently. But with banks’ interest margins close to their floor and lenders upholding credit standards, this has failed to translate into an increase in activity.
- So even if a Brexit deal is implemented by 31st January, a revival in the owner occupier housing market is unlikely. In fact, we expect to see weak house price growth and transactions out to 2021.
Chart 1: Newly Agreed Sales and Housing Transactions |
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Sources: RICS, HMRC |
Table 1: RICS Residential Market Survey – Key Figures | ||||||||||||||
2018 | 2019 | |||||||||||||
Net balances seasonally adjusted | Oct | Nov | Dec | Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sep | Oct | |
Past prices | -11 | -11 | -19 | -21 | -25 | -21 | -21 | -9 | -1 | -10 | -4 | -3 | -5 | |
New buyer enquiries | -13 | -21 | -18 | -34 | -38 | -25 | -24 | -2 | 9 | 4 | -1 | -17 | -16 | |
New sales instructions | -12 | -24 | -20 | -25 | -28 | -27 | -31 | -10 | 2 | -4 | -7 | -37 | -29 | |
Sales per surveyor (past 3m) | 14.0 | 14.0 | 13.9 | 13.6 | 13.3 | 13.2 | 12.8 | 13.0 | 12.5 | 13.1 | 13.0 | 12.7 | 12.3 | |
Unsold stocks per surveyor | 43 | 42 | 42 | 43 | 42 | 42 | 41 | 41 | 41 | 42 | 43 | 42 | 43 | |
Tenant demand | -3 | -4 | 7 | 10 | 13 | 12 | 15 | 29 | 23 | 23 | 22 | 21 | -3 | |
Landlord instructions | -14 | -22 | -12 | -15 | -19 | -17 | -11 | -10 | -9 | -14 | -9 | -21 | -14 | |
Rent expectations | 12 | 13 | 16 | 22 | 18 | 22 | 30 | 33 | 25 | 26 | 24 | 25 | 12 | |
Source: RICS | ||||||||||||||
Gabriella Dickens, Assistant Economist, 020 3974 7421, gabriella.dickens@capitaleconomics.com