Royal Institute of Chartered Surveyors Housing Market Survey - August 2007

RICS Economies August 2007

House price growth turns negative as slowdown deepens

• New buyer enquiries down at the fastest pace since August 2004.
• Confidence in the price outlook falls to the lowest level since June 2005, but confidence in the sales outlook improves slightly.  
• London now seeing the strongest price growth in the UK

House price growth turned marginally negative in August for the first time since October 2005.  Demand continued to weaken as rising interest rates weighed on buyer affordability, although supply remains constrained on the back of strong economic fundamentals.  In Northern Ireland price growth turned negative, but it has picked up in Scotland.  London is now seeing the strongest price growth in the UK, where momentum has abated only slightly since the beginning of the year. 

On the demand side, new buyer enquiries declined for the ninth consecutive month and the fastest pace since August 2004, which marked the sharpest fall in enquiries at the peak of the last interest rate cycle.  Newly agreed sales fell for the third consecutive month and at the fastest pace since October 2004.

New instructions to sell property fell for the third consecutive month and at a slightly faster pace than in July, while the stock of unsold property on surveyor’s books decreased fractionally.  Households’ confidence in their financial situation strengthened in August and therefore they are under little pressure to sell. 

As a result of softening demand but constrained supply, market conditions tightened slightly.  The ratio of completed sales (over the last three months) compared to the stock of unsold property on the market increased to 37.6% as the decline in stocks was proportionally larger than the decline in sales.  Market conditions have been loosening since April, but are now slightly tighter than the survey’s long run average of 37.2%. 

Surveyor confidence in the price outlook fell to the lowest level since June 2005, due to uncertainty over the extent to which recent credit events may spill over into the mortgage market and as five interest rate increases since last August weigh on property demand.  However, confidence in the sales outlook improved slightly, although it still remains marginally negative. 

In England, outside of London, surveyors reported relatively large price falls in the West Midlands, the North West and East Anglia.  Smaller price falls took place in Wales, Yorkshire and Humberside, and the East Midlands, while only moderate price growth is taking place in the South East, South West and North.

Prices

House price growth turned negative in August for the first time since October 2005.  For the three months to August, 1.8% more surveyors reported a fall in prices than a rise, compared to a rise of 10.8% in July. 

The main drivers of this trend were the relatively large falls taking place in the West Midlands, the North West and East Anglia.  Smaller falls took place in Wales, Yorkshire and Humberside, and the East Midlands.  Surveyors are now reporting that only moderate price growth is taking place in the South East, South West and the North.  House price growth has turned negative in Northern Ireland, but has picked up in Scotland.  However, London is now seeing the strongest price growth in the UK, where momentum has abated only slightly since the beginning of the year. 

Property Sales

Completed property sales for the quarter to August fell fractionally to 23.3 per surveyor from 23.5 in July.  On year ago levels sales are down 10.2% compared to 10.3% in July, which marks the fourth month of consecutive falls. 

Stocks of Property

The stock of unsold property on surveyor’s books declined slightly.  Average stocks per surveyor were 62.2 in August compared to 63.3 in July and are down 10.0% on year ago levels.

Sales to Stock Ratio

The ratio of completed sales (over the last three months) compared to the stock of unsold property on the market increased fractionally to 37.6% in August from 37.1% in July, as the decline in stocks was proportionally larger than the decline in sales.  Market conditions have been loosening since April, but are now slightly tighter than the survey’s long run average of 37.2%.

Newly Agreed Sales / Expected Sales

Newly agreed sales fell for the third consecutive month and at the fastest pace since October 2004.  Declines took place across the board with the exceptions of the North West and London.  The former region recorded a moderate increase, while in the latter, newly agreed stabilised.  Particularly heavy falls took place in the West Midlands and East Anglia, while more moderate falls took place in the South West and East Midlands.

Surveyor confidence in the sales outlook improved slightly although it still remains marginally negative in light of the five interest rate increases that have taken place since last August.  Confidence rebounded firmly in London, East Anglia, and the West Midlands, though it deteriorated in the South East, South West and Wales.

Expected Prices

Surveyor confidence in the price outlook fell to the lowest level since June 2005, due to uncertainty over the extent to which recent credit events may spill over into the mortgage market and as five interest rate increases since last August weigh on buyer affordability. 

Confidence is negative across all regions with the exceptions of London and Yorkshire and Humberside.  In East Anglia, Wales, the North and the East Midlands, confidence deteriorated sharply while more moderate falls took place in the South West and the North West.  Slight improvements took place in the South East, and the West Midlands, although confidence still remains negative in these areas.

New buyer Enquiries

New buyer enquiries declined for the ninth consecutive month and at the fastest pace since August 2004. This marked the sharpest fall in enquiries at the peak of the last interest rate cycle. 

Falls in new buyer enquiries took place across all regions in England and Wales.  Moderate falls took place in London and the South West, while relatively large falls took place in the South East, Wales, East Anglia, Yorkshire and Humberside, and the West Midlands.

New Instructions

New instructions to sell property fell for the third consecutive month, and at a slightly faster pace than in July.  Households’ confidence in their financial situation strengthened in August and therefore they are under little pressure to sell. 

New vendor instructions fell across all regions in England and Wales with the exceptions of London and Yorkshire and Humberside, where marginal increases took place in both cases.  New instructions to sell fell particularly sharply in East Anglia and the West Midlands, while much less severe falls took place in the South East and Wales.