RICS Housing Market Survey - March 2007

RICS Economics March 2007

• House price growth picks up in March but large divide in market remains regionally
• Purchase enquiries drop but pace of decline slows
• New instructions to sell property rise for the first time in 9 months but market conditions remain tight.

House price inflation showed a marginal upturn in March having slowed over the previous four months.  The strongest house price rises took place in Northern Ireland and Scotland, while London continued to lead price rises in England.  In the South East, house prices continued to rise at a strong pace but in Northern England price rises are generally moderate while falling back in the East Midlands. 

New buyer enquiries declined for the fourth consecutive month as recent interest rate increases weigh on buyer affordability.  However, the pace of decline in new buyer enquiries more than halved in March from February, and the level of demand is still strong in light of the buoyant employment climate.  This should support sales activity in coming months. 

New instructions to sell property rose for the first time in nine months, although the national figure appears to have been skewed by unusually large increases in new instructions in the North West and East Midlands.  It is still too early to detect any meaningful impact from the instruction of sellers’ packs in June on the behaviour of would-be sellers.  Indeed, the sock of unsold property on surveyors’ books declined again in March, falling to its lowest level since June 2004.  This in turn pushed up the ratio of completed sales (over the last three months) to the stock of available property on the market further, indicating that market conditions are the tightest since June 2004.

The cumulative impact of past rate hikes, as well as the prospect of another hike in the coming months, is weighing on surveyor confidence in the price outlook.  However, confidence is still positive, as demand for property still greatly exceeds supply.  Confidence in the sales outlook rose for the second consecutive month, rising to the highest level since August. 

Although the housing market is showing some signs of stabilisation, further interest rate rises will lead to a renewed easing in price inflation and activity levels.  Indeed, this was the pattern during the last rate rising cycle of 2003/2004.  After the initial drop on late 2003, activity and house price inflation recovered as households absorbed the first rate rises.  However, rate rises into the summer of 2004 finally took their toll on the housing market, depressing sales activity into 2005.

National Information

Prices

House price inflation picked up in March having slowed over the previous four months. For the three months to March, 25.5% more surveyors reported a rise in prices than a fall, up from 24.8% in February.  As the long run average for the survey is 20.0%, the housing market is still in good health. 

The strongest house price growth took place in Northern Ireland and Scotland, while London continued to lead price rises in England.  In the South East, house prices continued to rise at a strong pace, as was the case in the South West.  Price inflation in generally muted elsewhere in the country.  In Northern England in cluding leeds and wakefield price rises are generally moderate while falling back in the Eat Midlands. 

Property Sales

Completed property sales for the quarter to March rose fractionally to 28.7 per surveyor from 28.5 in December though down from 29.2 for the quarter to February.  On year ago levels sales were up by 12.1% in March, compared to a rise of 17.9% in the year to February. 

Stocks of Property

The stock of unsold property on surveyors’ books declined again in March, falling to its lowest level since June 2004.  Average stocks per surveyor were 60.1 in March compared to 62.4 in February, and were 16.8% lower from year ago levels, the largest annual fall since July 2005.

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 47.8% in March from 46.9% in February.  Market conditions are the tightest since June 2004, with the sales to stock ratio in March more than eleven percentage points higher than the survey’s long run average of 37.1%. 

Newly Agreed Sales / Expected Sales

Newly agreed sales rebounded in March, with purchase activity rising again at the same pace as in January.  The largest increases took place in the West Midlands, followed by Wales and the South West.  The South East and the East Midlands experienced moderate growth in newly agreed sales.  In the North West newly agreed sales stabilised, while declines took place in East Anglia, Yorkshire and Humberside including Leeds and Wakefield, London and the North. 

Surveyor confidence in the sales outlook for the next three months rose for the second consecutive month, with all but two regions in the survey (East Midlands and North West) recording increases.  Confidence in the sales outlook jumped to the highest level since August, and is above year ago levels. 

Expected Prices

The cumulative impact of three interest rate rises since last August as well as the prospect of another rate rise in the coming months is weighing on surveyor confidence in the price outlook, which fell for the fifth consecutive month.  However, confidence in price rises is still firm, only slightly below the survey’s long run average, as demand for property still greatly exceeds supply. 

Confidence in the price outlook declined fractionally in London and the South East, although it remains buoyant in both regions.  In the South West, confidence rose firmly for the second consecutive month, while in the North west confidence fell further in East Anglia, Yorkshire and Humberside including Leeds and Wakefield and the West Midlands.  In the North, confidence turned positive, while in Wales confidence moved deeper into negative territory. 

New Buyer Enquiries

New buyer enquiries declined for the fourth consecutive month as recent interest rate increases weigh on buyer affordability.  However, the pace of decline in new buyer enquiries slowed in March, and the level of absolute demand is still strong in light of the buoyant employment climate. 

New buyer enquiries fell across all regions of the survey, except for Yorkshire and Humberside where they stabilised, and the North where they rebounded slightly after last month’s sharp slowdown.  In the South East, South West, East Anglia, North West and the West Midlands new buyer enquiries fell slightly, though in many cases at a slower pace than in February.  Heavier falls in new buyer enquiries took place in the East Midlands, London and Wales. 

New Instructions

New instructions to sell property rose for the first time in nine months, although the national average figure appears to have been skewed by unusually large increases in new instructions in the North West and East Midlands.  Despite rising interest rates, households generally report that they view their financial position as healthy which has held down the forced selling of property.  It is still too early to detect any meaningful impact from the planned introduction of sellers’ packs.  However, some respondents expect an increase in new instructions as we approach the June 1st deadline. 

Notwithstanding large regional swings in vendor sales, new instructions also picked up across most other areas of the survey, although moderately.  In the West Midlands, new instructions fell slightly, while they fell more heavily in the North and East Anglia.  Significantly, new instructions continued to fall in London.