Medium term expectations cast doubt on supply response

  • Activity indicators suggest subdued picture will persist
  • Improvement in New Instructions may be short-lived given appraisals data
  • Twelve-month and five-year price and rent expectations consistent with new supply disappointing

The June 2018 RICS Residential Market Survey results continue to point to a broadly stable picture, at least as far as the headline numbers are concerned. However, the generally subdued tone to the aggregated data is still masking materially divergent trends at a more localised level. Significantly, the Newly Agreed Sales was the sixteenth successive month which produced a negative result. This series has a good record as a lead indicator of HMRC and Land Registry transactions data and suggests that the modestly softer trend in sales volumes compared with last year will persist over the coming months. Indeed, to the extent that the New Buyer Enquiries series provides a gauge as to the appetite from potential purchasers to acquire property there is little reason to expect any uplift in sales volumes during the second half of the year. Consistent with this generally uninspiring picture is the rise in time it is taking to complete a property sale from initial listing. This has edged up on the RICS measure from around sixteen weeks in the spring of last year to around eighteen weeks on average at present. The Residential Survey has in the past highlighted a lack of available second-hand stock as a key impediment to the efficient functioning of the market. It would be presumptuous to conclude at this point that this issue is lessening in importance as an obstacle, particularly as the average inventory of unsold supply per estate agent branch still remains close to historic lows at 43. This series has, however, edged up in each of the last four months, albeit only very marginally. Moreover, the New Instructions net balance has recorded positive numbers for two consecutive months; this is the first time that this has been case since the early part of 2016. However, whether this can be sustained remains to be seen especially as the run rate on new appraisals of property by valuers is still reportedly down on the same period last year for the whole country. A cautious view on activity is also justified by the (twelve-month) Sales Expectations series which saw the net balance slip to zero, the lowest figure since October last year. That said, it is noteworthy that twelve-month Price Expectations remain in positive territory, even if somewhat less so than previously. Looking further out, the five-year series is still pointing to cumulative house price gains of more than twelve per cent which casts some doubt on the likely uplift in housing supply over this period and the ability of current policies to address the affordability crisis. The Newly Agreed Sales data is displaying a little more monthly volatility at a country/regional level but the South East is showing the most consistent negative set of results with London not far behind. At the other end of the scale, the feedback for Northern Ireland and Scotland suggests these two areas are displaying greater resilience. An ongoing theme from the lettings results is the drop in new instructions coming through to agents.