Miles Shipside, commercial director of Rightmove comments: “We observed last month that rising prices and more properties coming to market would be unhappy bedfellows in the long-term. This month we are seeing signs that the relationship is under increasing stress. Sellers are starting to reduce their pricing expectations to court the fewer buyers who are able to proceed, though the number of buyers who can purchase is too low to bring volume back to the housing market. The ugly ducklings in the housing beauty parade will be left on the shelf”.
In May last year average asking prices rose by 2.4%. The average May increase over the past decade has been 1.5%, so with a more modest monthly increase of 0.7% there are signs that this year’s sellers are now toning down their bullish spring price expectations. What they have not done is stay off the market, or be put off by the political uncertainty. In the last full week before the election, Rightmove recorded its highest number of new listings for nearly two years. The last time we recorded over 30,000 new listings in a week was in the week commencing 28th June 2008.
Miles Shipside observes: “The election was held in the middle of the spring selling season, but there is little sign that it deterred people from selling their houses. New sellers have already been holding back on coming to market for nearly two years, and as kids do not stop growing in a recession, some family houses must be bursting at the seams. While sellers don’t appear to be put off, the rising levels of unsold stock indicate that buyers are not as willing or able to act upon their pent-up moving desires”.
Rightmove’s quarterly Consumer Confidence Survey polled potential movers at the start of the year, asking whether the election would affect their moving plans. A resounding 70% said it would not, and this surge of new sellers so close to the election bears that out. Potential buyers remain in a difficult position however, with lenders’ deposit requirements and credit-worthiness criteria still marginalising a large body of would-be home-movers. The number of people who can proceed with nothing to sell has dwindled, with first-time buyers and amateur investors particular casualties of the finance famine. As a result, the market has to either operate at reduced sales volumes or hope that sellers can sell to each other, forming circular chains by trading up and down. This is a much more inefficient model, with less chance of sales success and longer lead-times contributing to increasing stock levels. While new stock remained low, this inefficient market was able to maintain prices as long as supply broadly matched demand. With more sellers now marketing, this uneasy equilibrium is in danger of becoming unbalanced.
Shipside adds: “There aren’t enough ready-and-able buyers to soak up a surge in fresh stock. If more property was at last year’s bargain prices then cash-rich investors could be tempted out of the woodwork to help make up for the missing mortgage-reliant buyers. One year on, sellers’ prices are less tempting, and that will lead to an over-supply in less popular areas”.
Rightmove has measured a substantial jump in unsold stock per estate agency branch, increasing from 68 to 71 in the last month. It is the third consecutive monthly increase, contrasting with the same period last year when bargain-hunting buyers started to snap up available stock and gave a firm base for confidence-boosting upwards price pressure. The pace of monthly asking price increases is now starting to slow down compared to last year, resulting in a drop in the annual rate to 4.3%.
Shipside adds: “We forecast that prices in 2010 would end up broadly flat, with gains in the first half of the year falling away in the second half. This pattern seems to be emerging as supply begins to outstrip demand in the less desirable locations”.
One of the many issues for the new Government is to review the ‘broken’ housing market. The previous Government’s target of 3 million new homes by 2020 was aimed at meeting projections for growth in the number households. This target is now in tatters with the industry struggling to build even 100,000 homes this year. Assisting higher new-build and resale housing transaction volumes is likely to be an important consideration as part of a consumer-led recovery. The wholesale funding model for securing mortgage finance is likely to remain flawed for years to come, and indeed the funding markets could face more immediate challenges if banks become more nervous about lending to each other as the Greek financial crisis rumbles on. There may also be a further increase in the supply of property to the market when the Conservatives carry out their election pledge to scrap Home Information Packs thus reducing the cost of selling a house and tempting speculative sellers back to the market.
Shipside concludes: “The new coalition Government faces a tough challenge in fixing the ‘broken’ housing market. This may become increasingly difficult if the Greek illness turns into a European pandemic causing a relapse in the condition of the financial markets. There is also the looming issue of reducing public sector spending by £6 billion. This will have an impact on the financial position of thousands of employees whose jobs depend on the public sector and a resulting knock-on effect on the health of the housing market.”