Newsletter November 2008
RICS Housing Market Survey October 2008
The RICS Housing Market Survey for October shows a modest improvement in the price balance, although it remains at a historically low level. It also recorded a further fall in the level of transactions.
Significantly, however, lead activity indicators (new buyer enquiries and sales expectations) both picked up further during the month. The (seasonally adjusted) net balance of surveyors reporting falling rather than rising prices improved slightly from -84.5 to - 81.8 in October.
The price balance has been fluctuating around the low -80s level since July. The main factor that is depressing prices is the large stock of property on estate agents books relative to the pool of able buyers, rather than any surge in distressed selling. Indeed, new instructions to sell property continue to fall in aggregate.
However, it is not insignificant that since May, the number of regions in the Survey where new instructions are either stable or rising has begun to trend upwards. On the activity side, while new buyer enquiries and newly agreed sales continue to fall overall, the net balances (on both indicators) improved for the sixth consecutive month. This suggests that the drop in activity, which accelerated during Q1, has slowed in Q2 and Q3.
The clarification of the details surrounding the stamp duty holiday (for properties below £175,000) over the summer may be partly responsible for this. However, Chartered Surveyors also stress that basic changes in personal circumstances implies a natural floor on activity levels irrespective of economic conditions.
That said, completed sales per surveyor (over the last three months) fell to 10.9, which is the lowest level on record (this series was first introduced in 1978).
Again, London remains at the bottom of the activity league, with just 6.4 sales per surveyor on average.
In the West Midlands, a mild resurgence in sales activity has taken place over the last two months with the figure now standing at 15.3.
Meanwhile, the inventory of stocks on surveyor’s books fell to 80.7 (the lowest level since December 2007). This is partly because increasing numbers of vendors are opting to let their property instead, given the difficult sales market.
Nevertheless, the continued fall in stocks during October was not enough to prevent another drop in the ratio of completed sales to the stock of unsold property in the market.
The sales to stock ratio- an indicator of market slack and a key guide to future price changes – dropped to 13.5%. This suggests further price falls are likely in the near term. In terms of the price and activity outlooks, the former remained stable, mirroring the trend in the price balance since May.
Meanwhile, the confidence in the sales outlook, continued to improve. Indeed, sales expectations hit their best level since March 2007, and are now above the surveys long run average (this series was first introduced in 1998).
Looking at the data from a regional respective, the price balance still remained deeply negative across England and Wales, although modest improvements took place in seven out of the ten regions.
The price balance deteriorated further in London and the West Midlands, while in East Anglia it stabilised.
In Scotland, the price balance also remained unchanged, albeit at very negative levels, while in Northern Ireland, it deteriorated further.
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RICS Residential Lettings Survey Q3 2008
In the three months to October, continued falls in houses prices coupled with further tightening in mortgage lending conditions has turned more would be buyers and sellers to the rental market.
Those who are unable to obtain mortgage finance are renting. Meanwhile, would-be home sellers are opting to bide their time by catering for the increased demand rather than sell at distressed prices. Indeed, new landlord instructions outpaced supply for the second consecutive quarter, and the margin between the two widened considerably as relatively more disaffected sellers became landlords.
27% more surveyors reported a rise in new tenant lettings than a fall, compared to 36% in July. Meanwhile, 56% more surveyors reported a rise in new landlord instructions than a fall, compared to 45% in July. The rise in supply of new lettings relative to demand has led rental levels decline for the first time since April 2003.
However, the falls to date appear to have been quite modest. As a result, against the backdrop of relatively sharper falls in house prices, gross yields continue to rise. Still relatively elevated rental levels, against the backdrop the wider stagnation in the sales market, is causing increasing numbers of landlords to remain committed to the lettings market.
Indeed, the proportion of landlords opting to sell their property at the expiry of tenant lease fell to 0.5%, the lowest on record (2003). Rental expectations turned negative for the first time since July 2002 and have also fallen to the lowest level on record (2000).
From a sectoral perspective, houses outperformed flats on the activity side, although the latter area outperformed the former with respect to rents (both past and expected). London was the only region where tenant demand fell outright.
The strongest growth in new instructions took place in the Midlands and Wales.
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Half of borrowers avoid stamp duty in September
The temporary increase in the stamp duty threshold saw 51% of homebuyers avoiding stamp duty in September, compared with 22% in September last year. However, the number of house purchase loans was 57% lower than September 2007, according to new data from the Council of Mortgage Lenders.
There were 35,000 loans for house purchase worth £5 billion in September, down 15% in volume and 15% in value from August, and less than half September 2007 levels.
There were 62,000 loans for remortgage worth £8.5 billion in September, down 15% in volume and 16% in value from August, but still around two thirds of September 2007 levels.
First-time buyers in September borrowed an average of £104,500, down from £108,000 in August. The amount borrowed has been steadily declining since peaking at £119,250 in July 2007. This has brought the average first-time buyer income multiple down to 3.18, its lowest level since March 2006. But first-time buyers have been continuing to put down larger deposits (16% in September) and fewer of them are entering the market – only 13,400 in September, down from 28,200 in September 2007.
There were 21,500 loans to home movers worth £3.4 billion, a decline of 59% in volume and 61% in value from September 2007. The typical home mover borrowed 71% of the property’s value and 2.82 times their income, compared with 72% and 3.02 a year ago.
CML director general, Michael Coogan, said:
“While house purchase activity has reached exceptionally low levels, it is encouraging to see transaction costs lowered for a larger proportion of borrowers. The government should consider what other measures can be brought forward to enable the market to transact more easily.
“Banks and building societies do want to support homeowners, but they have limited funds available and are, quite reasonably, taking a prudent approach to risk. If the pricing and volume of interbank lending continues to improve, this should help the flow of mortgage lending.”
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Property sales are slowly increasing says NAEA
The National Association of Estate Agents have stated that property sales are on the rise again with the average estate agent selling seven properties in October, compared to six in September and five in August. Whilst this is admittedly from a very low base, this is a positive sign admist the gloom of the credit crunch.
"Sellers are beginning to face up to the reality that their houses are not worth as much now as they were 12 months ago," says Chris Brown, president of the NAEA. "They are ripping up last year's price tags and beginning to come to terms with the new economic reality."
Another significant indicator for things becoming a little more positive is the proportion of first time buyers in the market which also increased in October. But while the market is no longer at a complete standstill, it is too soon for estate agents to start celebrating.
The number of house hunters registered with estate agents dropped 7 per cent in October, according to the NAEA, while the average number of unsold homes on their books rose from 91 to 98.
"It all balances out, doesn't it," says Peter Bolton King, chief executive of the NAEA.
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