The UK residential property market’s pre-Christmas slowdown is now well underway. We look at the latest house-price indices and bring you some expert predictions for 2011.
All the major house-price surveys are currently reporting an underlying slowdown in prices, despite divergences caused by their different survey methods.
According to Nationwide’s latest House Price Index, prices edged down further in November. The average price of a home is now £163,398.
“The recent trend of modestly-falling house prices continued during November, with the price of a typical UK property declining by 0.3%, on a seasonally adjusted basis, between October and November," comments Martin Gahbauer, Nationwide's chief economist. "The three-month-on-three-month rate of change – a smoother measure of the recent price trend – rose from -1.5% to -1.3%. This remains well above the deeply-negative rates of -5% to -6% that prevailed during the most severe phase of the downturn in 2008. The annual rate of change – which compares house prices to their level 12 months ago – fell from 1.4% to 0.4% and suggests that house prices are essentially unchanged from a year earlier.”
Jones Lang LaSalle’s (JLL) latest Residential Market Forecast indicates that residential price growth continued to weaken throughout the second half of 2010, with a national flat housing market predicted by the end of the year. A two-tier market is also evident, which splits price performance in London from the rest of the UK.
Says James Thomas, head of Residential Investment and Development at JLL, “UK prices are up 1.4% annually, although, in light of public-spending cuts, prices fell back 1.5% in Quarter 3 and, as the bulk of these cuts are phased in, average UK house price growth has been revised down from 0% to -1% in 2011.
The latest House Price Index from LSL Property Services/Acadametrics shows transactions, and prices, inching upwards. Average house prices in England and Wales registered a 0.3% increase in October, to £224,709. This, says the survey, is the sixth consecutive month in which there has been a marginal gain in price. Year-on-year house-price growth slowed to 6.1%, and it is expected to slow further as the small increases in 2010 fail to match the larger gains of a year ago. The number of transactions in October rose by 2.0% in the month, but will be down 7.3% compared to last October. This is the first month this year during which transactions are lower than 2009 levels.
Dr Peter Williams, housing market specialist and chairman of Acadametrics, explains, “Given that the market is bouncing along the bottom, we should not be surprised to note a degree of variation in the reporting from different indices. Last month, Halifax reported a revised 3.7% fall, which was an outlier result compared to other measures. This month, Halifax shows a 1.8% rise, the quantum of which is presumably counteracting last month’s figures. Meanwhile, the Rightmove index, based upon asking prices and thus a forward measure, is reporting a 3.1% increase. Given what we know about the market at present, this may reflect an optimistic stance amongst sellers.”
Richard Sexton, director of chartered surveyors e.surv, which is part of LSL, comments, "House-price growth may have been marginal over the last six months, but the housing market has shown a surprising resilience in the face of strong headwinds. The dearth of mortgage finance is still reining in potential purchases.
"For cash buyers – or those with a big enough deposit – the market presents an attractive opportunity. The supply of properties on sale has continued to grow, and vendors are increasingly flexible over price negotiations."
Countrywide variations
Continues Mr Sexton, “We are also seeing gaps between regional markets grow wider. In the last quarter, London’s house prices have an annual growth seven times greater than those in the North. Public-spending cuts are likely to hit some areas more heavily than others, and these gaps may well become gulfs over the medium term, as buyer finances are affected.”
JLL's James Thomas says, “In contrast to much of the UK, price growth in London has continued. When measured on a quarterly basis, Greater London rose 1.1% in Quarter 3, and southern areas of England gained 0.8%, while the Midlands and northern markets were flat."
Knight Frank’s Prime Central London Index for November 2010 reports that the Eurozone crisis is boosting the central London housing market.
House prices in central London rose in November by 0.9%, the first rise since June. Prices are now 23.7% higher than they were in March 2009, but still 5.7% below their peak in March 2008. After a weak period in the summer, the number of buyer registrations is rising strongly, with significant interest from European buyers – up 23% year on year in November in terms of new applicant volumes, with 40% growth over the same period from buyers from Italy and Spain.
The strongest sector in terms of price growth is the £1m to £2.5m sector, with 2.3% growth over the last month. In terms of sales performance, the strongest sector is £10m+, which has seen sales volumes rise 500% since July and August.
According to Liam Bailey, head of Residential Research at Knight Frank, “One of the key factors which has helped prices begin to rise is that vendors are now accepting that the very-ambitious asking prices which were the norm until the early autumn are counter-productive. More-realistic asking prices have allowed competitive bidding to take place in some instances, and, therefore, have contributed to pushing prices higher.
“The other key issue which appears to have driven prices higher over the past month is the ongoing lack of stock. This is especially true in the SW1, SW3 and SW7 postcode areas, where stock volumes are lower by 32% compared to this time last year.
“The scarcity of sales stock is compounded by a tight rental market in central London, which is reducing alternative options for potential purchasers.
“Anecdotal feedback from the market confirms that the ‘safe haven’ role played by central London property is still being recognised by international purchasers.
“The view taken by many new entrants to the market – and the volume of new applicants from Europe looking to buy in central London has risen 23% year on year – is that London property is a strong defensive option as the events in the Eurozone continue to play out and while the pound is still trading at a discount to the euro. Spanish and Italian interest is very strong – with a year-on-year growth in applicant interest up by 40% from these markets.
“Outside Europe, there is still the demand from Asia-Pacific buyers, who have benefited from 30% to 50% price growth in Hong Kong, Singapore and other key Asian centres over the past year, and are keen to take advantage of the weak pound and take money out of what have become, arguably, very hot markets in Asia.
“Despite recent price growth in central London, Eurozone- and dollar-based buyers are still able to achieve an effective discount of 14% and 26% respectively, due to currency movements on March 2008 prices in London.”
‘Price premium’ for market towns
As shoppers set off to explore the German Christmas markets springing up across the UK, Lloyds TSB has taken a look at the cost of buying a home in some of England's more-traditional market towns, and found that some command a premium of up to around £30,000 compared with homes in other parts of the same county.
House prices in market towns are, on average, £29,319 (or 14%) higher than their county average. The average house price in market towns, at £231,163, is 7.1 times average gross annual earnings.
More than two-thirds of market towns have higher house prices than neighbouring towns, and 69% of market towns have a higher average house price than their county average. Beaconsfield, in Buckinghamshire, has the largest premium, with houses trading at 145% above the average house price in the county. The average house price in Beaconsfield is £736,585.
Eighteen other market towns have an average house price exceeding £300,000. All ten of the most-expensive market towns in England are in the south. Wetherby is the most expensive market town outside southern England, with an average house price of £311,140 – 99% above the West Yorkshire average.
Those looking for a cheaper market town should head for Ferryhill, in County Durham, which, with an average house price of £98,799 in August 2010, is England's least-expensive market town.
Lloyds TSB‘s Martin Ellis says, "Homes in market towns command a significant premium over their neighbouring towns, with the quality-of-life benefits often associated with living in such locations still proving popular among homebuyers. Market towns are often particularly attractive for those looking to move into more-idyllic surroundings without sacrificing many of the important amenities they currently enjoy."
The estate agents’ view
Hometrack’s latest monthly survey of over 5,100 agents and surveyors across England and Wales highlights a dip in housing demand as consumer confidence falters and the seasonal slowdown starts. Both demand and supply are currently weak, which has resulted in the average time on the market rising to 9.8 weeks – the highest level since May 2009.
According to Hometrack, the proportion of homes for which the asking price is achieved has dropped to 92.4% – the lowest level since September 2009.
The National Association of Estate Agents' (NAEA) market report for October showed that, with the festive period looming, the number of sellers and buyers declined month on month. However, despite this, agents reported that sales levels held up, with the average branch selling seven properties in the month, the same as in September.
NAEA president Michael Jones warned that the traditional seasonal slowdown was being exacerbated by sellers unwilling to accept falling house prices and buyers suffering from restrictive lending criteria. Said Mr Jones, “Buyers and sellers are inclined to wait until the New Year when they have more time to commit. But the housing market is also very price-sensitive currently. Many sellers believe that the lack of available housing stock means they can make a sale without lowering the price of their home. However, house-hunters are also confident of a good deal.
“It is reassuring that sales seem stable and we have actually seen a slight increase in the percentage of sales made to first-time buyers. But mortgage restrictions will need to be eased if we are to see any real increases across the market moving into the early part of 2011.”
In other news, the NAEA has introduced the first-ever licence for estate agents. The association believes that the licence will help to raise standards throughout the housing industry and ease consumer concerns.
Speaking at the launch of the new scheme, which took place at the House of Commons, Peter Bolton King, the NAEA's chief executive, said, “Nobody would knowingly get into an unlicensed taxi. However, thousands of people are willing to entrust one of most important transactions of their life to people who are not qualified or experienced.
“We would like all sellers and buyers to ask their prospective agents, ‘Do you have a licence?’ If they don’t, they should ask themselves whether that’s the best place to market their property."
Housing Minister Grant Shapps said, "This is exactly the sort of measure the housing market needs – simple and sensible changes that are driven by industry and designed to deliver results. By ensuring they enjoy the trust of people buying and selling homes, estate agents will inject greater confidence and movement in the housing market.”
The NAEA, which claims to represent around one in three estate agents in the UK, intends to have as many of its members as possible licensed by June 2011. Details of members can be found at www.naea.co.uk
Expert predictions for 2011
Jones Lang Lasalle expects the north/south divide to widen next year, as public spending cuts and a reduced welfare spend affect take-home income. Government policy, it says, will continue to have a significant bearing on the housing market, with the Comprehensive Spending Review, Localism Bill and National Planning Framework due in April 2012 all set to have an impact. Regionally, local authorities will be able to benefit from the government’s New Homes Bonus scheme, designed to stimulate house building at a local level, under which councils in England will be offered extra money for every newly-built home.
Rob Bruce, head of Residential Research at JLL, says, “Short-term turmoil sees UK price growth estimates revised down. After new government policy measures are embedded, the longer-term outlook for stable price growth is encouraging. National prices are forecast to rise by an average of circa 7% per annum from 2012–14. The regional differential is, however, projected to widen, with growth in London above 9% per annum”.
Of regional price variations, the LSL/Acadametrics report states, “We anticipate that we will be recording house price falls on an annual basis in the next few months in the North and in Wales, as the strong growth in house prices in the second half of 2009 drops out from the statistics."
Acadametrics' Dr Peter Williams comments, “The Governor of the Bank of England has talked of a ‘sober’ decade dominated by savings, orderly budgets and equitable rebalancing, and it is evident that the Bank is comfortable with a slowly deflating housing sector which, over time, might restore affordability and ease access to the market. However, what we have is a ‘two speed’ market with strong activity, as measured by price and volumes, in some areas and weak activity in others. This has long-term significance in terms of labour mobility, economic growth and opportunity.”
According to Hometrack, continued reduction in the supply of homes for sale seems inevitable in the coming months, as vendors either reduce asking prices or withdraw property from the market. This is expected to act as a support to pricing levels over the second part of 2011.
“There is little evidence to suggest that house-price declines are likely to accelerate in the months ahead," says Nationwide’s Martin Gahbauer. "Much of the weakness in property values since the spring has been driven by a return of sellers to the market, following unusually low levels of property for sale in 2009 and early 2010. However, there is little to indicate that these sellers need to achieve a sale urgently for financial or economic reasons, which means that the downward pressure on house prices is only modest."
E-surv’s Richard Sexton has the last word. "Future repayments to the government top the list of lenders’ priorities, and they aren’t likely to loosen their pursestrings any time soon. While house prices and transactions won’t nosedive, we don’t expect them to rocket up in the foreseeable future.”
