Steadier demand and tight supply push price expectations higher

• Supply conditions tighten again in most areas
• Demand stabilises following recent falls in buyer enquiries
• Twelve month price and sales expectations move upwards

The February RICS Residential Market Survey shows a slight pick up in price momentum with the headline price balance moving to +14 from +7 previously. London remains the only region where more surveyors are reporting prices to have fallen rather than risen over the past three months. However, even in the capital the rate of decline has moderated substantially; a net balance of 28% of respondents in London are now reporting falling prices versus 46% in January. Northern Ireland and Scotland continue to outperform all other areas in terms of price growth thanks, in part, to the resilience of demand.

The RICS new buyer enquiries series shows demand stabilising at the headline level after seven consecutive negative net balance readings. The divergence across the country is becoming less pronounced with most parts now seeing some rise in enquiries. On the supply side of the market, conditions tightened once again with a net balance of 8% of respondents seeing fewer new instructions to sell (when measured on a seasonally adjusted basis). New instructions fell in most areas with anecdotal evidence suggesting that political uncertainty may be adding to the supply constraints by causing some vendors to hold off putting their properties on the market.

The combination of subdued demand and a lack of property coming to market has kept sales activity muted recently. The net balance of agreed sales recorded a value of +1 following the slight increase in January. Despite this, sales expectations remain more upbeat at the headline level with a net balance of 10% of respondents envisaging a rise in transactions over the coming three months. Near term expectations are positive across all areas except London, the South East and East Anglia, where political uncertainty may be weighing more heavily on the market due to higher price levels in these parts of the country than elsewhere. At the twelve month horizon, sales expectations remain firmly positive across all areas of the UK with the headline reading rising to 57 from 48.

Near term price expectations firmed slightly to +10 in February from +3 the previous month. In the East Midlands, expectations turned slightly negative for the first time in two years as 9 successive months of falling buyer demand weigh on the outlook for prices. London is the only other region where respondents envisage price falls in the near term but at the twelve month horizon the outlook has improved across most areas with the headline price expectations balance moving to +65% from +53% in January. On average respondents expect to see prices rise by 2.4% over the coming year and by an average of 4.5% per annum over the course of the next 5 years (compound rate of around one quarter).

In the lettings market, tenant demand rose across most areas during February with the headline demand net balance reaching +34 (on a non-seasonally adjusted basis). Meanwhile, new instructions to let remained broadly unchanged following 10 months of steady declines. This sustained demand supply imbalance pushed the three month rent expectations series higher to +33 (on a non-seasonally adjusted basis), with rental values expected to grow across all areas. On a longer term basis, expectations for rental growth also pushed higher with respondents, on average, envisaging rental values rising by 2.6% over the coming twelve months with growth accelerating thereafter to an average of 4.9% per annum over the course of the next five years.