RICS Housing Market Survey - November 2006

November 2007

Housing demand resilient despite interest rate hikes

• House price rises stabilised in November though inflation remains strong
• Purchase enquires no longer rising strongly but demand is still robust  
• Tight market conditions putting upward pressure on house prices
• Sharp price gains in Southern England, Scotland and Northern Ireland but more modest rises elsewhere

Houses prices rose for the thirteenth consecutive month in November. The pace of increase stabilised the first time since March that the survey has not indicated an acceleration in price growth. Price rises are being driven by tight market conditions with limited property on the market against a background of robust demand.

Property sales have picked up significantly, rising 20.1% from a year ago levels in November. New buyer enquires also rose but the pace of increase has clearly slowed since the summer. Overall enquires are though strong, underpinned by rising employment and income levels which have helped the market to absorb the negative impact of rising interest rates so far.

New instructions to sell property declined for the sixth consecutive month in November. The stock of unsold properties on surveyors books also stuck at the August 2004 low established in the previous month are down almost 10% from a year ago levels. As sales are rising, the ratio of property sales to available stock of property (an indicator of the tightness of market conditions) rose further, hitting the highest rate since August 2004. Greater market tightness points to price rises in the months ahead.

Surveyor confidence in the price outlook fell back but remains at elevated levels, also indicating that robust prices are likely to be sustained in the near term. Indeed, price expectations are positive across all regions for the seventh consecutive month.

London and the South of England showed the strongest price rises on the back of a booming City economy and services sector. Rapid price rises have also been sustained in Scotland and Northern Ireland, though in both cases inflation has slowed since the summer. Price rises in the rest of the country are more modest and far removed from the boom like conditions in London. However, rises in the Midlands and the North of England are firmer than during the spring and summer months.

National information

Prices

House prices rose for the thirteenth consecutive month in November, up at a similar pace to the previous month which was the strongest since September 2002. For the three months to November, 47.4% more surveyors reported a rise in prices that a fall, down, 47.7% in October.

Once again, London and the South of England experienced the strongest price rises on the back of a booming City economy and services sector. Rapid price rises have also been sustained in Scotland and Northern Ireland, though in both cases inflation has slowed since the summer months.

Price rises in the rest of the country are more modest and are far removed from the boom like conditions in London. However, rises in the Midlands and the North of England are firmer than during the spring and summer months.

Property sales

Completed property sales for the quarter to November rose to 28.2 per surveyor from 25.9 in August, and are the highest since August 2004. On year ago levels sales were up to 20.1% in November, which is the highest percentage gain since March 2002 and compares with a rise of 19.0% in October.

Stocks of property

The stock of unsold property on surveyor’s books stabilised in November but is still at the lowest level since August 2004.  Average stocks per surveyor were 66.4 in November, down 3.7% from three months earlier and 9.1% lower from a year ago levels.

Sales to stock ratio

The ratio of completed sales (over the last three months) compared to the stock of available property on the market rose to 42.5% in November from 41.0% in October. Market conditions are the firmest since August 2004 with the indicator of market tightness rising further above the long run average for the survey of 37.0%

Newly agreed sales / Expected sales

Newly agreed sales rose for the seventeenth consecutive month in November, but at their slowest pace since April. The deceleration was wide spread with only Yorkshire and Humberside reporting an acceleration. Whilst sales are rising at a national level, this masked falls in the East Midlands, South West and Wales.

Surveyor confidence in the sales outlook for the next three months fell to the lowest level since September 2004, following the November quarter point interest rate hike. Confidence though is only slightly below the long – run average for the survey.

Expected prices

Surveyor confidence in the price outlook fell slightly on the back of recent interest rate rises. The fall is not surprising as higher interest rates will restrain demand. However, optimism over prospects remains at elevated levels and well above the survey’s long run average, underpinned by the low level of property available on the market for sale.

Confidence in the price outlook remained positive across all regions for the seventh consecutive month. Confidence increased from already buoyant levels in the North, East Anglia and Wales. Confidence fell moderately in the South East and West Midlands, although still firm, while falling in the South West, Yorkshire and Humberside and East Midlands. In London confidence in the price outlook fell although surveyors still remain optimistic.

New Buyer enquiries

New buyer enquires rose in November, extending a record run of increases to eighteen consecutive months. This underscores the continued strength of housing demand backed –up by a buoyant economy despite recent interest rate rises. While buyer enquires are rising at a slower pace than during the summer, overall demand conditions are firm.

Growth in new buyer enquires slowed or fell across all regions except the North West, where they rose moderately. Falls in buyer enquires took place in Wales, the Midlands and Yorkshire and Humberside. In the South East and South West new buyer enquiries stabilised, while in the North buyer enquires rose firmly, although significantly below the pace of last month.

New instructions

New instructions to sell property declined for the sixth consecutive month in November, contributing to tighter housing market conditions.

Even with interest rates rising, households in November viewed their financial situation as pretty robust as a whole. This still indicates that households are little pressure to sell property due to financial distress.

New instructions to sell declined London, the South East, the East Midlands, Wales and the South West. The largest rises in instructions were in Scotland and the North.