Buyer demand and lack of supply to keep pushing up house prices – RICS

Would-be buyers are still on the hunt for a new home, whilst stock levels and new listings remain scarce.

This means that house prices continue to be pushed higher across all parts of the UK, according to RICS latest survey of the market.

This month +10% of respondents reported a rise in new buyers’ enquiries, the eighth successive month in which the survey has returned a positive net balance.

However, looking at the number of new properties being listed for sale, respondents have once again reported a subdued trend in listings, -1% of respondents said that new listings were falling instead of rising, albeit this projects a more or less steady picture during the month. Elsewhere agreed sales were flat having risen in each past two months, returning a net balance of -2% in April.

Due to the imbalance between demand and supply, it’s unsurprising that stock levels remain extremely low (38 per agency).

Also, the number of appraisals being undertaken has seen little change compared with the same period twelve months ago, which does not seem to bode well for the flow of supply coming onto the second-hand market.

The supply vs demand difference also means that house prices have once again risen across all parts of the UK. This month, +80% of respondents reported an increase in house prices, up from +74% in March.

Looking ahead, contributors are anecdotally preparing themselves for some market adjustments given the recent rate rise and the pressure on household budgets. That said, near-term sales expectations remain positive, as a net balance of +12% of respondents anticipate a rise in sales over the next three months.

Looking to the year ahead, the net balance has eased for the fourth consecutive report and now -4% expect sales to fall, however, this is signalling a flat trend on the whole.

When looking to the future of house prices, contributors expect prices to continue to rise, albeit to a lesser degree than in previous reports. Looking forward to the next year, +62% anticipate prices to rise, but this is down from +78% in the February survey.

Looking at the lettings market, (seasonally adjusted quarterly data) there is no let up on the lack of new listings coming to the market as -7% reported another fall in new properties available to rent.

To note, this is less negative than the 12-month average of -17%. Demand continues to also increase as over half (+52%) of respondents saw an increase in enquiries.

The long-standing imbalance between supply and demand means that rents are once again expected to rise. Indeed, significantly, +63% of respondents expect them to rise in the coming three months and this is a record high for this metric (records began in 1999)

RICS economist, Tarrant Parsons, said: “Despite growing macro headwinds in the form of cost-of-living pressures and higher interest rates, the UK residential market continues to see modestly positive trends in new buyer enquiries.

“For the time being at least, even though there is a lot of caution about the future economic landscape, it seems that limited supply available on the market, coupled with steady demand growth, are still the overriding drivers of house prices.

“As such, there is little evidence at this stage of house price inflation losing much momentum, while expectations for the coming twelve months have only moderated slightly from recent highs.”

Reaction

Jeremy Leaf, north London estate agent and a former RICS residential chairman: 

“The RICS survey has proved to be historically accurate in terms of what’s happening on the ground and in the near term.

“These figures bear out what we’ve been seeing – lower quantity but higher quality of enquiries which is resulting in strong but fewer sales and slightly longer transaction times as movers are no longer feeling the hot breath of competing buyers on the back of their necks. Stock levels are improving modestly but not fast enough to keep up with demand, particularly for family houses so prices are still on the up, albeit not so rapidly.

“Looking forward, we don’t expect too much change particularly while higher cost of living and interest rate pressures remain a priority for many.”

Richard Rowntree – Managing Director, Mortgages, Paragon Bank

“Respondents to RICS’ latest Residential Market Survey noted a slight decrease in new instructions to sell, with the level of properties available to purchase still significantly lower than that needed to meet demand.

“The current increasing interest rate environment has inevitably made mortgage borrowing more expensive to finance properties that have sharply risen in value over the past year.  When combined with inflationary pressure on household finances, the ability of first-time buyers to save for deposits may be negatively impacted. This could mean that people need to remain in privately rented housing for longer, prolonging the high tenant demand that we have seen over the past 18 months.

“With supply failing to meet demand and landlords also facing increased costs to manage their lettings business, rents are likely to continue to rise. This adds to the squeeze on personal finances, further hindering the opportunity for significant numbers of the population to live in a home of their choice.

“To interrupt this cycle and meet this demand, it is important that investment in the private rented sector is facilitated. The mortgage industry has a key part to play, but this must be alongside Government policy that doesn’t deter private investment in the UK’s second largest housing tenure.”

Emma Cox, MD of Real Estate at Shawbrook: 

“The market continues to show signs of optimism as demand remains strong. This is despite the cost of living beginning to take its toll on potential buyers’ purses and the UK economy slowing.

This week’s Renters’ Reform Bill, announced in the Queen’s speech, is a welcome – and much needed – piece of legislation for the market. With the road to property ownership still rocky making sure that future properties are high quality, safe, and affordable is positive for both renters and landlords.

“Until this is implemented, however, the onus will fall to landlords to ensure that they are compliant. This coupled with the government’s proposed changes to EPC regulation on new tenancies, due to come into force in 2025, marks a busy period for landlords, especially those with older, period properties. Though the new property portal announced as part of the bill will help landlords understand their obligations, they will require further support and guidance from the industry to avoid being caught out.

“For landlords, the benefit of taking the time to make necessary improvements to rental properties sooner rather than later is that it will future proof properties and ensure continued demand from tenants. Improvements could also shelter landlords from short term volatility which could impact the market as we experience higher inflation and rising interest rates.”

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