House Price Rises Continue to Slow as Buyer Activity Drops

RICS Economics February 2007

• House prices up at slowest pace since May 2006
• New buyer enquiries drop further as impact of three rate hikes weighs on buyer affordability 
• New instructions stabilise but market conditions tight as available property stocks slip again.

House prices increased for the sixteenth consecutive month in February.  However the pace of the increase moderated with prices up at the slowest pace since last may; but still above the survey’s long run average.  Most of the country is experiencing modest house price rises with significant increases only apparent in South East England, Scotland and Northern Ireland.  Demand is showing further signs of weakening in light of recent interest rate rises, although supply conditions are tight due to the underlying strength of the economy. 

New buyer enquiries continued to fall in February as the cumulative impact of the three interest rate increases since last Autumn begin to impact on buyer affordability.  However, although housing demand is easing, it still strong in light of the underlying strength of the economy and employment.  Almost 300,000 jobs were created in 2006 and job vacancies jumped sharply in January.  Property sales rose firmly in February, up from 18.1% from year ago levels.

New vendor instructions to sell property stabilised in February and have gone nine months without an increase, the longest stretch in seven years.  Households turned increasingly confident in their financial situation in February and are still under little pressure to sell property despite higher interest rates.  Indeed, the stock of unsold property on surveyors’ books declined further in February, dropping to the lowest level since July 2004.  As a result the ratio of completed sales (over the last three months) compared to the stock of available property on the market rose to 47.0%, leading to the tightest market conditions since June 2004.

Surveyor confidence in the price outlook fell only marginally in February but is now down for the fourth consecutive month.  As a result of the market’s still tight demand / supply dynamic, confidence is only fractionally below the survey’s long run average.  Confidence in the sales outlook rose back above the survey’s long run average, owing mainly to a sharp rebound in confidence within London. 

The sharp house price growth continues to be seen in London and South of England but both have experienced a slowdown in recent months.  Moderate price rises took place in the North of England, while the East Midlands experienced a slight price fall and in the West Midlands prices stabilised.  In Scotland house prices increased at their fastest pace for several months while staying strong in Northern Ireland. 

National Information

Prices

House prices increased for the sixteenth consecutive month in February.  However, the pace of increase fell back with prices up at the slowest pace since last May.  For three months to February, 24.0% more Surveyor’s reported a rise in prices than a fall, down from 28.0% in January.  The long run average for the survey is 21.6%.

The strong house price growth continues to be seen in London and South of England but both have experienced a slowdown in recent months.  Moderate price rises took place in the North of England, while the East Midlands experienced a slight price fall and in the West Midlands prices stabilised.  In Scotland house prices increased at their fastest pace for several months and remain robust in Northern Ireland.

Property Sales

Completed property sales for the quarter to February rose to 29.5 per surveyor from 28.4 in November.  On year ago levels sales were up 18.11% in February, compared to a rise of 20.4% in January. 

Stocks of Property

The stock on unsold property on surveyors’ books declined further in February, falling to its lowest level since July 2004.  Average stocks per surveyor were 62.7 in February compared to 64.3 in January, and were 12.8% lower from 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 47.0% in February from 46.3% in January.  Market conditions are the tightest since June 2004, with the sales to stock ratio in February ten percentage points higher than the survey’s long run average of 37%. 

Newly Agreed Sales / Expected Sales

Newly agreed sales declined for the first time since June 2005, with the majority of the regions in the survey experiencing falls.  In London, the South West and the North sales increased moderately.  Elsewhere across the country sales declined, with moderate falls recorded in East Anglia and the East Midlands and heavier falls recorded in the South East, Yorkshire and Humberside, the West Midlands, Wales and the North West. 

Surveyor confidence in the sales outlook for the next three months rose back above the survey’s long run average, owing mainly to sharp rebound in surveyor confidence in London.  Although confidence is still below year ago levels, it reached the highest level since last October. 

Expected Prices

Surveyor confidence in the price outlook fell for the fourth consecutive month, as the cumulative impact of three quarter point interest rate hikes over the last six months began to weigh on the housing market.  However, as a result of the market’s still tight demand / supply dynamic, confidence in the price outlook is still only fractionally below the survey’s long run average. 

Confidence in the price outlook turned negative in Wales and the North, while it turned increasingly negative in the East Midlands.  Confidence remained unchanged in London at very buoyant levels, while in the South East and South West confidence increased slightly.  In East Anglia, Yorkshire, and Humberside confidence fell markedly although it remains positive.  In the North West confidence remained unchanged at very buoyant levels, while in the West Midlands, confidence increased slightly. 

New Buyer Enquiries

New buyer enquiries continued to fall in February as the cumulative impact of the three interest rate increases since last Autumn begin to impact on buyer affordability.  However, although housing demand is easing, it still remains strong in light of the underlying strength of the economy and employment picture. 

New buyer enquiries slowed markedly in the North, while in the West Midlands they stabilised after falling for three consecutive months.  Elsewhere across the country new buyer enquiries declined in the South West, Yorkshire and Humberside and the North West.  Heavier falls in enquiries took place in the East Midlands, Wales, East Anglia, South East and London. 

New instructions

New instructions to sell property showed signs of stabilising in February after declining in the previous eight months, indicating that overall market conditions remain tight.  Households turned increasingly confident in their financial situation and are under little pressure to sell property. 

New instructions to sell property fell sharply in the North West, as well as in the East Midlands.  Moderate falls in new instructions took place in Wales, Yorkshire and Humberside, while in the South East, South West and West Midlands new instructions increased moderately.  New instructions increased firmly in East Anglia, while in the North they increased very sharply.