South East: Housing market struggles as prices continue to fall

Prices continue to fall in the South East’s housing market as sales activity remains subdued, according to the latest RICS UK residential market survey for June.

Significantly, over the month, newly agreed sales have recorded the 27th successive month of continued decline in the South East, with -32% more respondents reporting a fall in agreed sales. The RICS series is a good lead indicator by around two quarters of the HMRC and Land Registry transactions data, and this continued decline in newly agreed sales suggests that this trend in sales volumes will not improve over the coming months.

 

Following on from that, the New Buyer Enquiries series which provides a gauge as to the appetite to acquire property (this series is well correlated with data on mortgage approvals), is showing little reason to expect any uplift, as the number of people in the South East looking to buy declined in June, with 24% more respondents reporting a fall. This prolongs the trend which dates back to late 2016. This is likely to persist through the second half of the year with the time taken to complete a sale edging up from around 15 weeks (Spring 2017) to around 18 weeks at present. 

 

Following six months of respondents reporting a fall in new instructions in the South East, in June they have risen, with 14% (previously -2) more respondents seeing an increase in the flow of properties being put up for sale. However, with average stocks remaining close to historic lows at 39 it would be too early to suggest that this issue is lessening as an obstacle.

 

The survey has in the past highlighted a lack of available secondhand stock as a key impediment to the efficient functioning of the South East market, and the pipeline looks unlikely to improve with new appraisals of property by valuers down on the same period last year. Looking ahead, sales expectations are flat for the coming three months, and at the 12-month point chartered surveyors are more cautious, with the net balance slipping to below zero for the first time since last October. 

 

The lack of activity on the sales side in the South East continues to impact prices. Prices fell for the 13th consecutive month that chartered surveyors have reported a house prices falling in the region. Respondents to the survey also don’t anticipate much change in the coming three months either. 

 

Looking at the lettings data, new instructions coming through to agents has dropped again (a net balance reading of -19%). This is the seventh consecutive month in which the feedback has pointed to lower supply of rental properties coming to market.  Anecdotal remarks, unsurprisingly, draw attention to role the change in tax treatment on investment property has played in driving this trend. The Rent Expectations series is pointing to a cumulative average rise of around fifteen per cent over the course of the next five years.

 

Simon Rubinsohn, RICS chief economist, commented: “It is hard to see what is going to provide much impetus for activity in the housing market in the near term. Meanwhile the ongoing challenges around lifting the delivery pipeline, reflected in last week’s disappointing data on housing starts, is captured in the suspicion in the survey that prices are likely to resume an upward course over the coming year. The challenge is also visible in the response of the private lettings market to change to the tax treatment on investment properties. While it is understandable that the government wanted to provide a lift for first-time buyers, this may well come at the cost of higher rents as the appeal of buy-to-let diminishes.”