…but Increased caution reported: Conflicting press reports about the housing market, rising borrowing costs and growing economic uncertainty are increasing caution among both vendors and buyers.
London still booming, but… Record transaction levels reported in several branches. However, although demand is still much higher than last year, it is the lowest level for several months. “This signifies a change in the climate, driven by increasing buyer caution.”
Many potential vendors ‘fence sitting’: The explosion in Market Appraisals continues (+25% in May) but many are still not converting into vendors and risk missing the best sales market for some time. Our research reveals that 50% more people decided not to sell following a market appraisal than in January, but those that do decide to sell are making up their minds more quickly.
Demand continues to outstrip supply: Our UK portfolio continues to decline, now 12% smaller than last year, while registered buyers are 13% higher. Buyers are actively searching for properties: in May our website attracted a record number of visitors.
Influx of new stock still anticipated: We continue to predict fresh stock as more of the (very high) levels of Market Appraisals over the past quarter convert into vendors. Several Managers indicate that this is already happening.
More landlords becoming vendors: Faced with declining yields, more are offloading investment properties to capitalise on the strong sales market
Our mantra: Realistically priced properties attract the greatest interest and maximise the chance of a sale.
Mark Anderson, Chief Operating Officer, said: “The widely anticipated post-Easter influx of properties has not yet materialised, although high demand continues. Currently in (booming) London withdrawals and fall throughs are both 25% lower than last year, underlining the current strong commitment of vendors and purchasers. However, vendors are increasingly having a problem finding somewhere suitable to move to and, if new stock does not materialise, this will undoubtedly create a more frustrating market for both buyers and sellers, some of whom will choose to opt out.
There are definite signs of increased caution. Some of our offices in the most overheated areas are already addressing the need for price reductions as it becomes increasingly evident that we may have passed the crest of the Spring wave. However, the tide remains high.”
Supply
The high level of potential new stock waiting to come on to the market shows no sign of abating. Our branches continue to be frantically busy conducting market appraisals at near record levels (25% higher in May compared to May 2003, following the 30% increase we reported in April).
But ‘potential’ supply is exactly what is - as it has been for most of this year. Many of these potential vendors are not converting and remain seated firmly on the fence. Whilst speculative market appraisals are an accepted part of the market (especially when prices are rising), the current level of non-commitment is significant – and indeed surprising in such a buoyant market.
The majority of the ‘fence-sitters’ are in the country regions; indeed we normally expect a higher proportion of appraisals in London to convert into vendors, and they continue to be motivated by the high prices they can achieve in this under-supplied market. However, overall they are still not converting in sufficient numbers to meet the high level of demand:
“We were predicting that the country regions, which were responding far more slowly to the surge in demand, would experience an upturn after Easter.” Richard Wigmore, Oxford
“We normally convert around two-thirds of our market appraisals, but over the last few weeks we have noticed that this has fallen to around half, highlighting both the increase in casual market appraisals and the number of people deciding to stay put.” Marc Goldberg, London Sales Director
Goldberg adds that many potential vendors are expecting prices to continue to rise and, in spite of our advice to sell now, they are adopting a ‘wait-and-see’ approach. Conflicting messages in the press - on the one hand highlighting booming house prices and on the other predicting a property crash and more expensive borrowing - are contributing to the confusion:
“We continue to have confused and conflicting messages concerning market conditions coming from the media, and it does make it difficult for house sellers to conclude exactly what is happening in the marketplace.” Scott Ford, Dorking
“The market is once again a profusion of mixed messages." Nigel Gammon, Godalming
The latest research reveals that 1 in 4 homeowners requesting a market appraisal are simply “curious about their property’s current value”, which is consistent with the previous 7 months. However:
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The percentage of potential vendors “deciding not to sell” following a market appraisal has been steadily increasing this year, rising from 20% in January to almost 30% in April.
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The percentage of those “still deciding” has fallen from two-thirds in January to one-third in April, indicating that decisions about whether to sell are being made more quickly.
Excluding “curiosity valuations”, the principal reasons given for deciding not to sell are:
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Vendors cannot find anything suitable to buy so decide to stay put
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They are interested to see by how much a home improvement project (e.g. new kitchen, conservatory) would increase the value.
Country Sales Director David Adams has commented upon this second point previously and stands by his earlier view:
“In my opinion supply has been restricted by the Government’s increase in Stamp Duty from 1% to 4% on homes above £501,000. With average costs of moving now at £33,000 at this price many homeowners are choosing to extend or renovate rather than move.” David Adams
As a result of all this, our data confirms that new properties coming on for sale across our UK network in May were only 2% higher than last year and 14% lower than in April. Consequently our property stock has continued to decline during the last quarter and our portfolio now stands 12% below last May’s level.
One significant reason for the shortage of stock is that Hamptons is enjoying a bumper year, selling peak levels of properties. Quite simply, these are not being replaced with new stock at anything like the required rate to satisfy demand. Many other agents also report stock shortages.
But making sweeping generalisms in the property market is always risky, as experience shows that somewhere there is always an anomaly! This month it is Winchester and Caterham:
“The market in Winchester has been steady throughout the Spring and the supply of new properties has met demand.” Stephen Tarrant, Winchester
“I cannot recall a time during the last decade when there has been such a large number of properties for sale across all price ranges - almost 30% higher than last year.” Howard Bettridge, Caterham
Data from our Lettings branch network reveals that more Landlords, faced with declining yields, are offloading investment properties to capitalise on the strong sales market:
“Investor landlords worried about further void periods are selling up. We are losing out to sales on properties that have been jointly marketed.” Charlotte Rose, Beaconsfield and Gerrards Cross Lettings
“We have several properties on a joint instruction with sales so that Landlords can let the fates decide." Tanya Thompson, Richmond Lettings
Our residential sales branches support this finding, for example:
“A large number of lettings investments are still coming to the market.” Robert Stewart, Fulham Sales
This skews the supply statistics in real terms, as this is a relatively short-term phenomenon, but it is bringing fresh – and welcome – stock to the market.
The possibility of a levelling off in the market is highlighted when we compare these figures with last month: although still at significantly higher levels than last year, market appraisals are almost 17% lower than in April. This is most noticeable in London where potential vendors were almost a third lower and new stock is down by one-fifth. And let’s not forget that Easter was in April.
Once again this is excellent news for vendors as the supply:demand ratio remains firmly in their favour; in spite of mortgage rate increases this helps to sustain the current high prices, as large numbers of buyers compete for fewer properties on the market. Gazumping is increasingly prevalent and reports of properties exceeding their asking prices are common – a sure sign of stiff competition among buyers.
Prices have certainly risen this year, but exactly by how much varies depending who you ask. Our data reveals that across our network prices this year have increased by almost 10%:
“The median price of houses sold across Hamptons’ UK network rose by 9.3% between 1 January 2004 and 30th May 2004. House price rises continue to be driven by a shortage of supply of homes.” Country Sales Director David Adams
But vendors should not make the mistake of thinking that because there is a shortage of stock they will be guaranteed an inflated selling price. Buyers are informed, highly discerning and reluctant to overpay (unless the property is special or unique in some way). Our monthly mantra, echoed by negotiators across our network, is that realistic pricing, effective marketing and good presentation are the keys to a successful sale:
“A realistic pricing policy, together with a proper marketing campaign, needs to be adhered to if expectations of an early and trouble free sale are to be met.” Rory McKenzie, Haslemere
“Sensible pricing is still a key factor in generating interest.” Guy Emanuel, Liphook
Also think like a buyer: it is worthwhile walking through your own property as a prospective purchaser and note the presentational jobs which you need to do.
The top end of the market has been especially active this year, with record transaction levels in some areas. Country House Director John Denney expected several properties to come on in May and was surprised when they did not:
“May felt like August - it was very much a “manana” month. The mixed messages in the press are certainly a contributing factor as people at the top end are unwilling to extend their vulnerability to risk. However, my advice to them is that the market is the best for some time and they should capitalise on it now as they should be able to achieve a successful sale - provided of course that their property is sensibly priced.” John Denney
Denney adds that top end properties continue to be shown to Russian buyers, with many particularly interested in Arts and Craft properties.
But with higher interest rates and record oil prices predicted (not to mention the increasing threat of global terrorism), one has to ask how long vendors will continue to make hay:
“The general supply and demand imbalance is responsible for the uplift in prices that we have seen this year. However, it is not obvious how sustainable this is likely to be, should we see a tailing off of demand.” Chris Hebert, Guildford
We strongly advise potential vendors to note the increasing buyer caution we are reporting (see below) and to take advantage of the strong current market, which may well prove to be their best opportunity to sell well in the foreseeable future:
“Demand and motivation are at an all time high and the time to sell is undoubtedly now.” Ursula Sadler, Western Region Area Director
Demand
The momentum from earlier months carried into May; we report another month of increased transaction levels compared to last year:
New purchasers registering in May were 13% higher than last year. London buyers continue to dominate the scene, still nearly a quarter higher in number than this time last year. Wimbledon Manager Mary Robinson gives a report typical of the London climate in May:
“We had another very busy month, with net sales in double figures for the third consecutive month. This has been the busiest period in the last six months. Many properties that have been on the market for some months have now had sales agreed, indicating a general firming of prices. Buyers are still wary of over-priced properties and these continue to stick.”
However, London Sales Director Marc Goldberg comments that although the capital saw record transaction levels in several branches and demand continues to be strong (still over 20% higher than last year), the number of buyers registering was the lowest for several months. Goldberg believes that this signifies a change in the climate, driven by increasing buyer caution.
New buyers registering in our country regions are similar to last year’s level and nearly one-fifth lower than in April, but rather than a sign of demand evaporating this is indicative of the high levels of new buyers in April. The number of viewings being conducted is also relatively lower than in May 2003, but the warmer weather will reinvigorate this activity. Indeed many branches are reporting an upturn in activity:
“With the arrival of warmer weather we have noticed an upsurge in prospective purchasers viewing properties.” Nigel Gammon, Godalming
“Activity has picked up with an increasing number of potential buyers registering, many of them in strong purchasing positions.” Carol Copeland, Farnham
“Late spring buyers became very busy during April and May. Sales arranged during this period have been at record levels.” Felicity Chetwood, Chichester
Although viewings may be down, buyers are certainly actively searching: in May our website attracted a record number of users at over 130,000 unique visitors - probably the largest number of visitors to any independent property website.
There are signs that the momentum from London is at last beginning to ripple through into the country:
“We are finding that a huge number of our fresh enquiries are from London.” Nigel Gammon, Godalming
“Record numbers of applicants are registering from London.” Heather Hopkins, Marlow
What are country buyers looking for? Heather Hopkins observes that buyers’ comments generally reflect two main issues: firstly, the desire for a 'lifestyle' move to a beautiful, cosmopolitan area with excellent schools, and secondly a preference to invest in 'bricks and mortar' as opposed to the uncertainties of the stock market. The perfect country cottage remains in high demand, but these are quite difficult to find (and are being snapped up whenever they appear).
Larger family houses with good grounds and within easy reach of the station continue to be in extremely high demand. We have also witnessed competitive bidding on smaller flats in town centres, again offering easy commuting. As mentioned above, pricing is always a key factor in attracting interest from buyers.
There is a very strong level of commitment among current purchasers in the capital (and vendors - see above) as we report fall throughs in London are 25% lower than last year. But the shortage of stock may be deterring buyers and encouraging them to stay put:
“Many of our buyers expected to see a greater choice of properties to buy by now, when the reality is that they are disappointed by the lack of choice.” Susannah Bennett, Bath
The question must be “how long will the momentum in the market continue”? Managers are reporting that the further base rate increase has so far not reduced enthusiasm among buyers. For the early Summer – assuming no political or economic bombshells - we predict that a buoyant market will continue, driven by a much-needed increase in the number of new properties coming to the market:
“As long as asking prices remain realistic, interest rates rises are small and world news remains relatively calm we should see the volume of transactions and heighten competition between sellers as buyer choice expands.” Chris Moorhouse, Thames Valley & Chilterns
However, it must be stressed that continuing conflicting press reports about the housing market, increased borrowing costs and growing economic uncertainty (e.g. oil) may yet conspire to nip the market before it has fully bloomed. Indeed increased buyer caution is already being widely reported:
“More sales have fallen through due to less confidence in the market. These are largely due to press reports.” Fenella Russell-Smith, Clapham
“Further interest rate rises and mixed media messages mean that many purchasers will err on the side of caution.” Garry Collins, Weybridge
“Purchasers are being somewhat more cautious in their approach.” Scott Ford, Dorking
“We saw a higher level of fall throughs, representing growing buyer uncertainty.” Stephen Tarrant, Winchester
“Gradually increasing interest rates, the current political and economic backdrop and mixed media messages will cause increased caution in the market.” Andrew Marshall, Marlborough
“It is evident that buyers are biding their time before submitting offers.” Guy Emanuel, Liphook
At the top end of the market, Country House Director John Denney echoes the view of his counterparts and remains optimistic that June and July will pick up, with more new houses coming on, driven by strong demand for quality period country houses.
Our message to buyers is that more stock is expected, but so are interest rate rises:
3 month LIBOR is up 0.20% at 4.63%. The current base rate is 4.25%. So the city is expecting either 0.25% or 0.50% increase in the next 3 months.
12 Month LIBOR is up 0.06% at 5.19%, indicating a 1% increase in the next 12 months.
The opportunity to lock in to favourable borrowing rates should not prevent you from actively searching for your ideal property now and throughout the Summer as new stock comes on.
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