March 2015: Residential Market Survey
- Price momentum picks up despite flat demand
- Supply conditions continue to tighten with demands remaining broadly unchanged
- Agreed sales still subdued
- Near term expectations for price and sales firm slightly
March’s RICS Residential Market Survey displays a slight pick up in price momentum with the headline price net balance rising to 21 from a revised 15 in February (8 in January). With demand widely unchanged throughout the month, the price momentum rise appears to have been enforced due to a further tightening in supply, with the majority of areas seeing a decrease in new instructions when compared to the previous month.
With demand appearing broadly flat at headline level and the RICS New Buyer Enquiries series coming in at -2, this figure masks what is a very mixed picture both across and within various regions of the country, as demand is impacted by a variation of factors. The recent change in stamp duty and the uncertainty surrounding the upcoming general election are some of the factors to have played a part. The developments are leading to what is a more erratic picture, with Scotland and Northern Ireland the only areas which have seen unbroken growth in demand over a period of the last six months.
March saw supply conditions tighten once again, with the net balance of new instructions recorded at a value of -9 following February’s reading of -8. Anecdotal evidence suggests that the election uncertainty may have led to sellers holding off putting their properties on the market, leading to a reduction in supply, mostly concentrated in England.
Activity has remained broadly unchanged when compared to the previous month, with sales levels having stayed muted partly due to the combination of subdued demand and the lack of fresh properties entering the sales market. Despite the continued weakness in the sales market, which saw an agreed sales net balance recorded at -1 in March, from a revised 0 the previous month, expectations for the coming three month period have risen with a net balance of 15% of respondents expecting activity levels to increase. This compared to a figure of 10% in February. Expectations at the twelve month horizon are optimistic across the majority of regions and confidence is much stronger with a net balance of 52% expecting transaction levels to increase.
A net balance of 16% of respondents foresee price rises in the coming three months, ensuring near term price expectations have firmed for consecutive months. London and Wales are the only areas where near term expectations are slightly negative, while at the twelve month horizon, respondents appear confident that all areas of the UK will see a rise in prices. A net balance of 70% of surveyors anticipated a rise in prices in the year to come, which is a ten month high and contributors expect prices to rise by 2.5% on average. The medium term sees the expectation that price growth is expected to pick up an average 4.5% per annum over the next five years.
Participants in the survey reported that ‘perceived LTV ratios’ for first time buyers would see a slight rise over the first three months of this year compared to Q4 last year. For existing owner occupiers, the opposite is true, where this proxy for credit availability saw a slight decline. The Q1 Credit Conditions Survey from The Bank of England elaborates on these results further, reporting that availability of credit to higher LTV borrowers saw a slight increase in Q1 while willingness to lend at lower LTV’s (<75%) reduced slightly over the quarter.
Tenant demand in the lettings market continues to outpace supply (monthly non-seasonally adjusted data) and a net balance of 26% of respondents expect to see rental values increase throughout the next three months. Rental growth expectations remain similar when compared to the previous month, with respondents anticipating a rise of 2.7% in the year to come and growth increasing from there onwards over the following five years to an average of 4.7% per annum.