The Royal Institution of Chartered Surveyors (RICS) UK Residential Survey for March 2023 suggests that although the housing market continues to be weak, there are early signs of stability and emerging optimism.
The report shows negative indicators for demand, sales, new listings, and house prices; however, the 12-month outlook for sales volumes has improved, hinting that a more stable trend may emerge soon.
The survey reported a -29% net balance of contributors seeing a fall in demand for new buyer enquiries in March. Despite this, the results also showed a less negative trend in near-term sales expectations, which has improved over the past three reports.
The 12-month sales expectations net balance reached +1%—its first time in positive territory since March 2022—indicating growing optimism among respondents.
Moreover, the lettings market has experienced a five-month high in tenant demand growth, with a net balance of +46%.
The strong demand is evident across the country, while the landlord instructions metric remains negative with a net balance of -21% in March.
This demand and supply imbalance is expected to push rents higher, with near-term rent expectations net balance rising to +59% from +45%.
For the year ahead, contributors are expecting roughly 4% growth in rental prices at the national level. Furthermore, all parts of the UK are anticipated to see an increase in rents during the coming twelve months.
RICS chief economist Simon Rubinsohn said: “The overall tone of the feedback received from respondents to the latest RICS Residential Market Survey is still one of caution towards the sales market which is reflected in both the headline price and activity indicators.
“Deals are being done, but a theme coming through in the anecdotal remarks is the need for vendors to recognise the shift in market dynamics.
“Significantly, there is also a sense that the medium-term outlook is looking a little more settled, helped by the perception that the interest rate cycle may be near the peak.”
Rubinsohn added: “Meanwhile, the rental market remains hugely constrained by the lack of stock. Indeed, the consistency of the message from contributors to the survey about the shortfall of properties to rent and the impact this is having on rent levels is striking.
“The shifting tax and regulatory environment are highlighted as impacting the viability of many landlords operating in the sector.”
Reaction
Sarah Coles, head of personal finance, Hargreaves Lansdown:
“Sellers can’t afford to get carried away. Things may not be as grim as we’d feared six months ago, but buyer demand has been dropping for the best part of a year, so if you’re going to sell, you need to enter the market with clear-eyed pragmatism.
“There are so few properties coming to market that agents are over-valuing in order to win the business. Homes then sit on the market without interest or viewings, forcing sellers to drop the price. It’s why Zoopla says discounts are currently averaging 4%. Right now, overpriced properties won’t just lose the initial flurry of interest when they first go up for sale, they also risk missing the Spring selling season, which could force more price drops when the market slows down. Agents stress that with buyers thin on the ground, and sales sluggish, only the right properties at the right price are shifting.
“For those keen to look closely for any signs of optimism, the one piece of good news is that expectations of falling interest rates later in the year have persuaded agents that we could see sales pick up again within the next 12 months – which is the first time in over a year they’ve felt this positive about the future. However, it’s the one bright spot in a really tricky market for sellers. It’s why, on balance, it’s difficult to see the market avoid more price drops in the coming months.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman:Â
“In our offices, we felt a slowdown was inevitable after property prices rose so far and fast last year, accelerated by the mini-Budget fallout.
“However, the increase in activity over the past few months has made us appreciate the end of the hangover is approaching and longer-term prospects are improving.
“Reasons for moving haven’t disappeared, while buyers are gaining confidence from strong employment and stabilising mortgage rates even though the cost of living is still a concern.”
Joshua Elash, director of property lender MT Finance:
“The property market is soft and this is reflected in the data, although a calm and steady Budget has helped settle the ship.
“A large percentage of potential homeowners, first-time buyers and investors have been put off by uncertainty. People are waiting to see what is going to happen as evidenced by the drop in transactional volumes. This is not the time to try and sell your property if you have a choice, as most prospective buyers will expect a discount in light of fragile market conditions and the self-fuelling narrative around falling house prices.
“Until there is better visibility as to where base rate levels off, and comfort that the cost-of-living crisis and inflation have been contained, expect continued downward pressure on house prices.”
