Royal Institute of Chartered Surveyors Housing Market Survey - July 2007

RICS Economies July 2007

Further signs of weakening despite price rises

• House price growth edges up in July
• Market conditions loosest since June 2006 on weaker demand and supply conditions
• Surveyor confidence in sales and price outlook fall to lowest levels since March 2003 and June 2005 respectively.

House price growth edged up in July, moving just above the moderate pace recorded in June.  House prices are increasing slightly faster in Northern Ireland than in London, though in both regions price growth is still very strong.  In Scotland, price growth nearly halved. 

On the demand side new buyer enquiries declined at the fastest pace since August 2004, while completed property sales for the quarter to July fell to 23.5 per surveyor from 24.4 in June.  Potential buyers are clearly responding to higher interest rates, although demand is proving more resilient then in the previous rate tightening phase in 2003/2004, due to strong underlying conditions in the economy. 

On the supply side, new instructions to sell property fell for the second consecutive month, but at a much slower pace than in June.  As the Home Information Packs (HIPs) episode begins to fade, growth in new instructions is showing signs of reverting back to its gradually rising trend since March.  The stock of unsold property on surveyors books increased to the highest level since January. 

The combination of softening demand and supply is causing market condition to loosen further.  The ratio of completed sales (over the last three months) compared to the stock of unsold property on the market fell to 37.0%, the lowest reading since June 2006.  Nevertheless, market conditions are still firm and in line with the Survey’s long run average of 37.1%.

Five interest rate increases since last August and the prospect of a sixth before the end of the year is further depressing surveyor confidence.  Sales and price expectations fell to their lowest levels since March 2003 and June 2005 respectively. 

In England, outside of London, conditions remain subdued although they have improved slightly on last month.  Only three regions – East Anglia Wales and the East Midlands - recorded moderate price falls, compared to five last month.  In the South West prices stabilised, while growth picked up slightly in the South East.  In the North and North West, price growth continued to ease, while in Yorkshire and Humberside and the West Midlands, prices are no longer falling. 

Prices

House price growth edged up in July, moving just above the moderate pace recorded in June.  For the three months to July, 12.6% more surveyors reported a rise in prices than a fall, up slightly from 10.4% in June. 

House prices are increasing slightly faster in Northern Ireland than in London, though in both regions price growth is still very strong.  In Scotland, price growth nearly halved.  In England, outside of London, conditions remain subdued although they have improved slightly on last month.  Only three regions – East Anglia, Wales and the East Midlands – recorded moderate price falls, compared to five last month.  In the South West prices stabilised, while growth picked up slightly in the South East.  In the North and North West, price growth continued to ease, while in Yorkshire & Humberside and the West Midlands, prices are no longer falling. 

Property Sales

Completed property sales for the quarter to July fell to 23.5 per surveyor from 24.4 in June.  On year ago levels sales are down 10.3% compared to 6.1% in June.  This marks the largest annual fall since September 2005.

Stocks of Property

The stock of unsold property on surveyor’s books increased to the highest level since January.  Average stocks per surveyor were 63.4 in July compared to 62.8 in June but are still down 7.9% from 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 fell for the fourth consecutive month to 37.0% in July from 38.9% in June.  Market conditions are loosening, but they are still more or less in line with the survey’s long run average of 37.1%. 

Newly Agreed Sales / Expected Sales

Newly agreed sales fell for the second consecutive month and at the fastest pace since November 2004.  declines took place across the board, with only the South East and Yorkshire and Humberside recording moderate increases.  The largest declines took place in the East and West Midlands, while in London, only moderate falls took place. 

Surveyor confidence in the sales outlook turned negative for the first time since March 2003.  This follows five interest rate hikes in under twelve months and the prospect of a further increase before the end of this year.  The largest falls in confidence took place in London, East Anglia and the West Midlands.  In the East Midlands, and Yorkshire and Humberside confidence improved but it is still depressed. 

Expected Prices

Surveyor confidence in the price outlook fell to the lowest level since June 2005 as five interest rate increases since last August and the prospect of a sixth before the end of the year further weighs on buyer affordability. 

Confidence is negative across all regions apart from London.  While confidence is still positive in London, it is now below the survey’s long run average.  Outside London, moderate falls took place in the South East and the South West, while larger falls took place in the West Midlands and East Anglia.  Elsewhere across the country, confidence improved. 

New Buyer Enquiries

New buyer enquiries declined at the fastest pace since August 2004.  Potential buyers are clearly responding to higher interest rates, although demand is proving more resilient than in the previous rate tightening phase in 2003/2004, due to strong underlying conditions in the economy.

Falls in new buyer enquiries took place across all regions apart from Wales.  Moderate falls took place in the North, while elsewhere heavy falls took place, particularly in the East and West Midlands.  In London, new buyer enquiries declined at the same strong pace as the previous month. 

New Instructions

New instructions to sell property fell for the second consecutive month, but at a much slower pace than in June.  As the Home Information Packs (HIPs) episode begins to fade, falls in new instructions suggest that households’ financial balances are still in good condition overall.  This is consistent with relatively good consumer confidence and rising job vacancies in the economy.

New vendor instructions fell across all regions apart from Wales and Yorkshire and Humberside, where instructions in the latter stabilised.  Heavy declines in new instructions took place in the North and the West Midlands, while in the North West, London, East Anglia and the South of England less heavy declines took place.