Some stability seen in forward-looking indicators.
Indicators on demand, sales, new listings, and house prices were all negative in March, reflecting a generally weak residential market backdrop, the Royal Institution of Chartered Surveyors (RICS) has reported. The latest RICS UK Residential Survey also found that near-term expectations suggest this pattern will remain in place for a while longer amid the tighter lending environment.
There is a glimmer of hope for the market though, as the 12-month view on sales volumes has improved in the March 2023 survey, with respondents anticipating a more stable trend emerging. For new buyer enquiries, a headline net balance of -29% of contributors reported a fall in demand during March, which barely changed from the -30% last month.
In terms of agreed sales, the national net balance slipped to -31% this month, down from a figure of -25% for February, though this was still less negative than the recent low of -43% reported in October 2022. RICS said that near-term expectations point to sales remaining under pressure over the next few months, returning a net balance of -29%, though this is less downcast than the reading of -45% posted in February.
At the 12-month time horizon, the net balance for sales expectations came in at +1%, representing the first time this measure has been out of negative territory since March 2022. Meanwhile, the volume of new listings coming on to the market fell slightly during March, according to a net balance of -6% of respondents, as against the -4% previously.
Likewise, the number of appraisals undertaken over the month continues to run below the level seen during the same period last year, with the net balance for this indicator sitting at -20%. “The overall tone of the feedback received from respondents to the latest RICS Residential Market Survey is still one of caution towards the sales market, which is reflected in both the headline price and activity indicators. Deals are being done, but a theme coming through in the anecdotal remarks is the need for vendors to recognise the shift in market dynamics. Significantly, there is also a sense that the medium-term outlook is looking a little more settled, helped by the perception that the interest rate cycle may be near the peak, "Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, said.
House prices on a downward trend
RICS also reported that house prices continue to go down, as evidenced by a headline net balance of -43% of respondents reporting a decline in the latest results. Although this remains consistent with a clear downward trend in prices, the latest reading is marginally less negative than the figure of -47% seen in the previous iteration of the survey – breaking a streak of 10 consecutive months in which this indicator had slumped between April 2022 and February 2023.
Regionally, the most significant declines in prices were reported across East Anglia, the South East, the West Midlands, and London. Going forward, near-term price expectations remain downbeat, returning a net balance reading of -49% compared to -53% last month. Regarding the outlook over the next 12 months, a net balance of -24% of survey participants foresees a further decline in prices over the year ahead. However, 12-month price expectations are now broadly flat in London, while contributors based in Northern Ireland, Scotland and Wales predict a rise in house prices over this timeframe.
Tenant demand continues to push rents up
In the lettings market, the survey’s tenant demand growth indicator reached a five-month high, posting a net balance of +46%. RICS said that strong tenant demand is being seen pretty much across the country, while at the same time, the landlord instructions metric remains mired in negative territory, returning a net balance of -21% in March.
Because of this demand-supply imbalance, respondents continue to anticipate rents being pushed higher, with the net balance for near-term rent expectations rising to +59% from +45%. For the year ahead, contributors are forecasting roughly a 4% growth in rental prices at the national level, with all parts of the UK expected to see an increase in rents during the coming 12 months.
“Meanwhile, the rental market remains hugely constrained by the lack of stock,” Rubinsohn said, “indeed, the consistency of the message from contributors to the survey about the shortfall of properties to rent and the impact this is having on rent levels is striking. The shifting tax and regulatory environment are highlighted as impacting the viability of many landlords operating in the sector.”
Sales agreed have returned to pre-pandemic levels
The number of home sales being agreed is now back to its pre-pandemic level for the first time since before the disastrous mini-Budget in September, Rightmove claims. New figures from the portal show sales agreed between sellers and buyers are now just 1% behind March 2019’s levels. Rightmove said the recovery is being driven by flats with agreed sales now 10% above 2019 after being 11% down at the start of the year.
This is most pronounced in London, where agreed sales of flats are now 23% higher than March 2019. The total number of sales agreed have recovered from being 21% behind 2019’s levels in January, according to the research. Overall sales agreed have recovered the most in London and are now 11% higher than March 2019, while sales agreed in the East Midlands are taking longest to catch up and are still 11% below 2019.
Across Great Britain, agreed sales are still 18% below the exceptionally busy market of this time last year and there is of course no guarantee that these sales will complete. Meanwhile the average size of price reduction from first to last listing price is also back to its pre-pandemic level of 6%, which is the equivalent of £22,000 based on the current national average asking price. It had dropped to 5% during the pandemic.
A third of properties have seen a price reduction, which is up from last year’s 19% during the frenetic market, but in line with the pre-pandemic level of 34%, Rightmove said. Its property expert Tim Bannister said, “the market is remaining surprisingly robust given the economic headwinds that have affected movers over the last six months. While the market is by no means at the exceptional level it has been over the last couple of years, it is a positive sign for agents that sales at a national level are being agreed at the same rate as the last more normal market of 2019, though there are regional differences across Great Britain. The level and size of reductions has also returned to its pre-pandemic norm, though pricing right the first time can often lead to a quicker sale, so it’s important for sellers to speak to an agent about their local market so that they price realistically and give themselves the best chance of finding a buyer.”