April 2015: Residential Markey Survey

Lack of stock pushes prices up in all areas

• Pick up in price momentum as supply conditions tighten further
• London price balance turns positive as demand edges up slightly
• Activity levels remain broadly flat as choice constraints and uncertainty weigh on market

The April RICS Residential Market Survey shows a further pickup in price momentum with the headline balance moving to +33 from +22 the previous month. For the first time since August 2014, the net balance of respondents reporting a rise in prices was positive in each part of the UK as the London balance came back into positive territory with a reading of +28. The acceleration in price momentum appears to have been driven by a further contraction in supply with the new instructions series falling deeper into negative territory.
As has been the case since the beginning of this year, buyer demand remained broadly flat in April with the net balance of contributors reporting a rise in new enquiries coming in at +4. Anecdotal evidence suggests that last week’s general election may have been weighing on demand in certain parts of the country and may also have deterred some sellers from listing their properties for sale. Indeed the net balance of new instructions recorded its most negative reading in April (the change compared with the preceding month) since May 2009.  More significantly, the underlying trend in new listings has been flat to slightly down since the beginning of 2014.
The sluggish demand picture and lack of new supply combined to keep sales levels generally subdued during the first quarter and there were no signs of any change in April with the agreed sales net balance coming in at -3 (a pattern mirrored in the sales per surveyor data). Activity levels decreased most sharply in London, where 21% more contributors saw a fall rather than rise in sales. Elsewhere the picture is more mixed but respondents in each area still expect activity to pick up with the three month and twelve month sales expectations balances remaining almost unchanged, at +17 and +49 respectively.
The modest uptick in prices in the capital appears to have been driven by several factors. After levelling off in recent months, buyer enquiries increased in April for the first time in a year while new instructions fell sharply once again. Recent Land Registry data suggests that prices are rising across a wide spectrum of London’s boroughs and our own data is supportive of this.
Near term price expectations remained unchanged at the headline level with a net balance of 16% of respondents envisaging a rise in prices over the coming few months. At the twelve month horizon, contributors are significantly more confident that prices will be higher with a majority of respondents in each region expecting a rise and with the headline price expectations balance (NSA) climbing to an eleven month high of +72.
In the rental market, tenant demand rose across all areas in the three months to April with the headline net balance climbing to +38. While new instructions to let at the headline level were reported to have been broadly unchanged for the seventh consecutive quarter, there is a substantial variation across the regions. In Yorkshire and Humber, supply of property continues to tighten (for the fourth consecutive quarter) while in London, supply has been steadily rising for three years now.
Near term rent expectations remained  firm across most areas with the headline net balance rising to +32 from +24 previously. Over the medium term rents are expected to rise broadly in line with prices with both increasing by an average of around 5% per year over the next five years.
Finally, our proxy for credit conditions shows a very slight improvement in the lending environment in April with respondents reporting ‘perceived LTV ratios’ of around 79% on average across buyer types.