News: House Prices Rise as Supply Unable to Meet Demand
July’s report from the Royal Institution of Chartered Surveyors (RICS) has revealed that the UK housing market is stuck in a ‘vicious circle’. Demand for homes is increasing, but fewer and fewer owners are willing to sell, resulting in a shortage that forces prices to rise.
A similar pattern has been seen over the past 4-6 months, but the strain on the market is now striking.
What do I need to know?
Demand grew across the country for the fourth consecutive month, with the South East the only exception. July’s increase was the fastest since February 2014, when the market was at a post-financial crisis high.
This is a contrast to this time last year, when new buyer enquiries were stable.
Less houses coming onto the market
Vendor instructions decreased for the sixth month in a row, with 22% of surveyors reporting a decrease in new vendor instructions. Decline was seen in 9 of the 12 areas in the UK, most sharply in East Anglia. Northern Ireland and the North East of England were the only markets with a significant pick up.
Again, this is very a different picture to July 2014, when new instructions inched ahead of buyer enquiries.
Housing stock at all time low
Stock of properties available to buy fell to an all time low in July. RICS measured a stock of 47 properties per surveyor. The resulting stock-to-sale ratio is about 42%, which is much tighter than the long run average of 33%.
Prices rise fast
Prices rose at the fastest rate since July 2014, when stock was similarly squeezed due to generous lending. Increase was nationwide, but Northern Ireland, the North West and East Anglia saw the steepest spikes. Only the North East bucked the trend, reporting a drop in property costs for third month running.
Why is this happening?
RICS head of Policy Jeremy Blackburn suggests that this is in part due to government schemes such as Starter Homes and Right to Buy. These initiatives are very successful in increasing demand, but without provisions to build more homes they only put pressure on the existing market.
Existing homeowners see the high prices and lack of choice, and decide not to sell. In turn, this narrows the market further - putting off other sellers and pushing prices even higher.
What about the rental market?
The rental market is in a similar position, perhaps because it is so hard to get on the property ladder. Landlord instructions are increasing, but cannot keep pace with the faster-rising tenant demand. Consequently, rent prices are also on the up.
This is not a dissimilar situation to July 2014, when tenant demand was on the increase and landlord instructions on the decrease.
What will happen next?
Property website Rightmove has reported the strongest August since the credit crunch, so it appears that trends are not likely to change any time soon.
Traditionally there is an August lull in the market, as buyers take time out for holidays. Usually this is felt as a national average price-fall of around 1.5%, but this year that average drop is just 0.8%, and many areas have actually experienced an increase.
Month-on-month increase can be seen in Wales, the West Midlands, North West and North East, and the entire country showed a rise in prices compared to this time last year.
RICS predicts that prices will continue to grow significantly in the next 12 months. This will be seen across the country, but most dramatically in East Anglia and Northern Ireland.
Rents are also to increase, with the sharpest rises predicted in the West Midlands, South East, East Anglia and London.
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