The monthly report from RICS posted the lowest survey reading in three years in July. Just 5% more respondents nationally saw a rise rather than fall in prices, down from 15% the previous month.
This downward trend that is evident across the UK and the London price indicator remains more downbeat with net balance of -33% which is broadly consistent with an outright drop in prices in the capital but not quite as sharp as that reported in June.
The report also says that as price growth slows for now, near term price expectations across the UK were negative for the third month in succession with 12% more respondents predicting a decline in house prices over the next three months. It is the longest stretch of negative readings since 2012.
As activity falters, interest from new buyers in the UK also continues to wane, with the results showing a fourth consecutive month of falling demand to a net balance of -27.
Notwithstanding the potential for near term weakness, respondents are slightly more optimistic about the 12 month outlook, upgrading their estimates for price growth relative to June. The latest data shows the net balance of those expecting prices to increase over the year ahead rising from zero to 23% but this still represents a significant softening compared to six months ago, when 66% more surveyors anticipated rising prices.
For the second month running, the regional breakdown shows London and East Anglia are the only areas in which prices are expected to fall over the year ahead. Nonetheless, London exhibits amongst the strongest projections over the medium term three month average, with respondents pencilling in around 4% growth, per annum, over the next five years. On the same basis, prices are expected to rise by close to 3% nationally.
The report also points out that the acute shortage of property for sale appears to be providing some underpinning for prices at present. Indeed, after staging a mild recovery through the early months of 2016, average stock levels on agents’ books have since started to fall again.
In fact, the flow of new sales listings coming to the market has contracted at the fastest monthly pace on record in each of the last three reports. With supply at or around record lows in most parts of the UK, lack of choice may weigh further on activity going forward.
New buyer enquiries declined markedly at the headline level during July, the fourth consecutive month of falling demand. This weakness was widespread, with virtually all areas of the UK experiencing a dip in demand during July.
In keeping with the deteriorating demand backdrop, sales volumes declined sharply and at the national level, a net balance of 34% more respondents reported a fall in sales as opposed to a rise, broadly unchanged from June’s reading. As such, the monthly pace of decline in each of the past two months was the fastest since 2008.
Market uncertainties following the referendum, but also recent tax changes, are frequently highlighted as contributory factors to the slowdown. Nevertheless, comments left by some agents suggest activity has picked up after an initial wobble, while others cite the Brexit vote as having only a modest or even negligible impact thus far.
Going forward, sales expectations now point to a broadly stable trend over the coming months, with the net balance moving into neutral territory at -2%, following -26% last month and for the twelve month horizon, the sales expectations series rebounded from -12% to 13%.
In the lettings market, tenant demand edged up in the three months to July, although the pace of increase decelerated materially relative to the preceding quarter. Meanwhile, new landlord instructions were more or less unchanged at the national level which has been an ongoing trend over much of the past two years.
Three month rent expectations moderated a touch and projections now point to only modest growth in the near term, with the net balance slipping from 18% to 12%. Further out, however, rents are still expected to rise just over 2% during the next 12 months.
‘The housing market is currently balancing a raft of somewhat mixed economic news alongside the latest policy measures announced by the Bank of England, which have already begun to lower cost of mortgage finance,’ said Simon Rubinsohn, RICS chief economist.
‘Against this backdrop, it is not altogether surprising that near term activity measures remain relatively flat. However the rebound in the key twelve month indicators in the July survey suggest that confidence remains more resilient than might have been anticipated,’ he pointed out.
‘Critically, it is hard to escape the stark message regarding supply that is evident in the latest set of results with RICS data showing inventories on agents books around historic lows on average. This is a long running story that may have been exacerbated by recent events but clearly needs urgent action from the new government,’ he added.
According to Andrew McPhillips, chief economist at the Yorkshire Building Society, prospective buyers are waiting to see how Brexit affects markets and their own finances and if this slump becomes more pronounced, it could cause a short term drop in prices which may see the market self-adjust as buyers look to make the most of the reductions.
‘Such an increase in demand would ultimately push house prices back up again so the market may remain volatile in the coming months. But people’s desire to own a home remains strong and combined with the underlying lack of supply that should support house price growth in the long term,’ he said.
