Royal Institution of Chartered Surveyors Housing Market Survey - October 2007

RICS Economies - October 2007

Slowdown Continues but Market is Cushioned by Strong Economy

• 22.2% more surveyors reported a fall in prices than a rise, which is the most negative net balance since July 2005; Confidence in prices is at the lowest since April 2003.
• New buyer enquiries and newly agreed sales both weakened heavily but so have new instructions.
• Sustained weakness in demand is resulting in greater stocks of property listed on surveyors’ books and looser market conditions.

Sentiment in the housing market deteriorated further in October.  For the three months to October, 22.2% more surveyors reported a fall in prices than a rise.  Falls in the price balance are being driven by weakening demand, though supply remains very constrained in the light of the solid economic fundamentals.  Surveyors reported price falls across all regions in England and Wales except for London, where price growth has yet to turn negative.  Outside England and Wales, price growth in Scotland cooled markedley though it remains positive, while in Northern Ireland, surveyors also reported large declines. 

On the demand side, new buyer enquiries and newly agreed sales both weakened significantly.  Past interest rate increases combined with a tightening in mortgage lending conditions have prevented many would-be buyers from getting on the housing ladder.

New instructions to sell property declined for the fifth consecutive month, although the pace of decline eased back fractionally compared to last month.  With economic growth still strong and household confidence in the current financial situation elevated, those already on the property ladder feel under little pressure to sell their property.  However, new vendor instructions continued to increase in London, whose economy is heavily geared towards the financial services sector, although not as quickly as last month. 

Sustained weakness in demand is resulting in greater stocks of property listed on surveyor’s books.  The stock of unsold property jumped by 8.8% in October, the highest monthly gain since May 2003.  This, as a result, pushed the ratio of completed sales (over the last three months) compared to the stock of unsold property on the market to 35.7%.  Market conditions are now the loosest they have been since May 2006, although the sales to stock ratio is only 1.5 percentage points below the survey’s long run average of 37.2%.

Surveyor confidence in the sales outlook improved slightly although it remains negative.  Surveyor confidence in the price outlook deteriorated further, reaching the lowest level since April 2003.

Elsewhere in England and Wales, the largest price falls took place in East Anglia, followed by the West Midlands, South West, East Midlands, and Wales.  Strong price falls also took place across the North, South East and Yorkshire and Humberside, while more moderate falls took place in the North West.

Prices

Sentiment in the housing market deteriorated further in October, with the balance of surveyors turning the most negative since July 2005.  For the three months to October, 22.2% more surveyors reported a fall in prices than a rise, compared to 14.9% reporting a fall in September.

Surveyors reported price falls across all regions in England and Wales except for London, where price growth has yet to turn negative.  The largest price falls took place in East Anglia, followed by the West Midlands, South West, East Midlands, and Wales.  Strong falls also took place across the North, South East and Yorkshire and Humberside, while more moderate falls took place in the North West.  Outside England and Wales, price growth in Scotland cooled markedly although it remains positive, while in Northern Ireland, surveyors are reporting large declines. 

Property Sales

Completed property sales for the quarter to October increased slightly to 23.2 per surveyor, from 22.9 in August.  This is the first increase since January of this year.  On year ago levels, sales are down 15.4% compared to 13.8% in September, which marks the sixth month of consecutive falls in the annual growth rate. 

Stock of Property

The Stock of unsold property on surveyor’s books jumped by 8.8%, marking the highest monthly gain since May 2003.  Average stocks per surveyor were 64.9 in October compared to 59.7 in September and are now only down by 1.2% on year ago levels. 

Chartered Surveyors at Manning Stainton in Leeds and Wakefield report many new properties coming on the market for sale.

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 to 35.7% in October from 38.2% in September.  Market conditions are now the loosest they have been since May 2006, but the sales to stock ratio is only 1.5 percentage points below the survey’s long run average of 37.2%.

Newly Agreed Sales / Expected Sales

Newly agreed sales declined for the fifth consecutive month and at the fastest pace in the survey’s history.  Past interest rate increases combined with a tightening in mortgage lending conditions has prevented many would-be buyers from getting on the housing ladder.  Large declines in newly agreed sales took place across the board with the exception of the North. 

Surveyor confidence in the sales outlook improved slightly although it remains negative.  Five interest rate increases have seen confidence come off heavily from its peak at the end of 2005.  Confidence is negative across all regions in England and Wales, except for in London, the South East and the North West.  Confidence is at its lowest in Wales, followed by the North and East Anglia, whilst it is highest in the South East, followed by London and the North West.

Expected Prices

Surveyor confidence in the price outlook deteriorated further, reaching the lowest level since April 2003.  The recent tightening in mortgage lending criterion on the back of the credit crunch is weighting heavily on sentiment. 

Confidence in the price outlook remains negative across all regions in England and Wales with the exception of London, where it is now marginally positive.  Confidence is most depressed in the East Midlands, followed by East Anglia, the West Midlands and the North West.  Confidence in Wales improved markedly though it remains negative.

New Buyer Enquiries

New buyer enquiries declined for the eleventh consecutive month, although the pace of decline, whilst rapid, eased back compared to last month.  Past increases in interest rates have stretched buyer affordability, as has a tightening of mortgage lending criteria in light of recent credit market events. 

Falls in new buyer enquiries took place across England and Wales, with relatively large falls taking place in the South East, as well as in the East Midlands and West Midlands.  Less heavy falls took place in London and East Anglia. 

New Instructions

New instructions to sell property declined for the fifth consecutive month, although the pace of decline eased back fractionally.  Past interest rate increases and recent financial market events are clearly weighing on property demand.  However, with economic growth still strong and households’s confidence in their current financial situation elevated, those already on the property ladder feel under little pressure to sell their property. 

New vendor instructions continued to increase in London, whose economy is heavily geared towards the financial services sector, although not as quickly as last month.  New instructions also picked up slightly in the North and they stabilised in the South East.  Elsewhere in England and Wales, new instructions continued to fall, particularly in the West Midlands and North West.  Less heavy falls in new instructions took place in the South West and Wales.