House prices continue to rise across the UK even as demand drops, because of a severe lack of stock, according to the July 2022 RICS Residential Market Survey.
The latest results show a continued fall in sales over the month.
With current sales reduced, predictions for the three months ahead also slipped further into negative territory, and twelve months ahead, the sales expectations are the most downbeat since March 2020 (-36%, down from -21%).
Looking at new buyer enquiries, these saw a third month of negative readings (net balance -25%), which is the longest stretch of falling demand from buyers since the early stages of the pandemic, and is evident across all of the UK.
Higher interest rates and the cost of living crisis are cited by contributors to be causing the drop in market activity, although it’s important to note that the survey sample was mostly gathered before the Bank of England’s latest 50 basis point rate hike.
The continued lack of supply is illustrated by new instructions remaining stagnant with average stock levels on estate agents books (36 per branch) remaining close to an all-time low. Meanwhile, respondents have seen little change in the volume of market appraisals being undertaken in relation to those observed twelve months ago, suggesting a material pick-up in supply is unlikely to emerge in the immediate future.
This lack of supply remains a crucial factor in underpinning continued growth in house prices. A headline net balance of +63% of respondents reported an increase in house prices during July, and while this is more moderate than a recent high of +78% in April, it is comfortably above the long run average of +13% for this indicator, and is still indicative of a firmly upward trend.
Looking further ahead, the twelve-month price expectations have now eased in each of the last five months, from a net balance reading of +78% back in February to a figure of +30% in the latest results but this still signals that prices will be higher in a years time than they are now.
In the lettings market, tenant demand continues to rise, with a net balance of +36% of respondents reporting an increase. That said, this does seem to have lost a bit of momentum when compared with readings of +62% and +50% recorded in the three months to January and April 2022 respectively. On the supply front, a net balance of -8% of respondents noted a decline in new landlord instructions, and consequently, rents are expected to continue to rise sharply over the near-term by a net balance of +57%, with all parts of the UK anticipated to see a further pick-up.
Tarrant Parsons, Senior Economist commented: “Amid a backdrop of sharply rising living costs, slowing economic growth and higher interest rates, it is little surprise that housing market activity is now losing some momentum. With monetary policy set to be tightened further over the coming months, sales expectations point to a further softening in transaction volumes going forward. Nevertheless, with respect to house prices, limited supply available is still seen as a crucial factor underpinning the market. Although house price growth is likely to continue to ease, respondents still anticipate prices will be modestly higher than current levels in a year’s time.”
