Hamptons International have released their latest sales fact pack and overall, they paint a positive picture of the property market…

While commentators continue to debate whether the property market is experiencing a temporary lull or a full downswing, buyers and home-owners have come to the realisation that double-digit price gains are a thing of the past – at least for the foreseeable future. 

According to the Halifax house price index, between Q4 2000 and Q4 2004 average prices increased 88%, but in recent months they have been flat, with small rises in some areas and falls in others. Halifax reported that property prices this month had stayed virtually unchanged since January, adding that the market was entering a period of “broad stability”, whilst Nationwide reported a 0.9% rise during April. 

High Street retailers are certainly seeing the effects of the slowdown. Consumers, who have relied upon the (apparently never-ending) capital growth in the value of their properties to fund a credit-based spending boom, are adapting and reining in expenditure.  According to the British Bankers’ Association growth in overall net consumer credit weakened again in March and, in the first quarter of 2005, credit card borrowing rose by only £0.5bn compared with £1.3bn in Q1 2004.  The protracted series of interest rate rises by the Bank of England seem to be working. 

An inevitable result of these rate rises is that increasing numbers of homeowners are struggling to cope.  According to the Department for Constitutional Affairs, Q1 2005 saw a 25% rise in the number of property repossession orders against Q1 2004 and in February the number of mortgage repossession court actions was the highest for five years. 

On a more positive note, house purchase loans in March hit their highest monthly total since the middle of last year, but although 19% higher than in February it was still 30% below March 2004.  Additionally, some consolation is that the price downturn makes a further rise in interest rates look less likely.  Many economists surveyed last year expected rates to peak at 5.25% early this year, but this peak looks less and less likely as consumer credit is slowing and the property price boom has been dampened.  However, some economists are expressing concerns about future economic growth, predicting a rise in unemployment and a marked slowdown in retail spending (which has already begun).  One thing is certain: any lack of consumer confidence will certainly impact the housing market.

Stock: Surplus or Shortage?

Although many of our branches continue to report a shortage of good quality stock, general reports suggest a surplus of property for sale across the country.  As such, vendors (who are always reluctant to lower asking prices) in areas of high supply are having to review their positions as the market shifts into the buyers’ favour. Conversely, several branch managers are reporting a strong sellers’ market in their areas, with some properties attracting premium prices as buyers compete for the fewer properties available.

Losing Steam

Much of the steam that drives the property market comes from first-time buyers and buy-to-let investors. However, both of these important segments are facing a much more challenging climate, which is a key influence on the current market:

First-Time Buyers: Last year the Halifax reported that 80% of Britain's 667 main towns were unaffordable for first-time buyers, who dropped to record low numbers last year. Given the current climate and in spite of recent price falls, it seems very unlikely that first-time buyers will be able to enter the market until there is a significant price reduction; unfortunately this looks unlikely in the foreseeable future.

Buy-to-Let: According to the Council of Mortgage Lenders the number of investors unable to meet their mortgage payments between the first and second half of 2004 increased by 50%.  Furthermore, during the same period loans to buy-to-let investors dropped by 18% compared with a drop of only 3% for owner-occupier buyers.  There is no suggestion that this segment is panicking and dumping property, but it must be noted that previously in the cycle, when faced with low rental yields, they were at least benefiting from capital growth.  As this looks less attractive, any further interest rate rise could see a negative reaction from them and therefore a corresponding impact upon the market. 

In summary we acknowledge that transaction volumes are likely to remain at lower levels compared with previous years in many regions, but our branches have seen a much stronger underlying market than many reports indicate.  Our view of future prospects for the market – at least within our branch network regions – remains optimistic, although confidence in the economy will play a key role. 

Spring Sales in the Capital

Despite widespread reports in the media about a surplus of property for sale, our branches have been reporting new stock levels that are consistently well below previous years’ levels (e.g. in March 05 it was 29% lower than in March 04). 

But at last, this month we report signs of the long-awaited influx of fresh stock coming onto the market. Driven by the traditional seasonal Spring boom and rising confidence, new instructions in April increased dramatically and were only 4% lower than in April 04.

• "Trading conditions continued to be very healthy in April. The welcome improvement in supply is largely a result of vendors realising that now is a very good time to get a result.” Marc Goldberg, London Sales Director

However, more stock is still needed to meet the relatively strong demand levels we are seeing as this influx is not yet benefiting all of our London branches, for example:

• “There are some new instructions coming to the market, but unfortunately not fast enough to replace the ones being sold.” Robert Stewart, Fulham

• “Greater transaction volumes are being limited by the lack of new property instructions rather than a lack of demand.” Keith Gorny, Paddington

• “It is good to see more instructions finally coming through, but more mid-range properties are still urgently required.” Dominic Pasqua, Chelsea

• “There is a serious lack of property coming on to the market, which means that there is limited choice for new buyers.” Mary Robinson, Wimbledon

This lack of stock has been good news for vendors, who have enjoyed the rise in demand without seeing a corresponding increase in the number of properties for sale to compete with.  This is especially unusual for this time of year, and has allowed them to fully capitalise on the seasonal uplift:

• “This market is advantageous to vendors who have not only seen prices rise again recently but who are now able to negotiate with a confidence born of knowing that few alternatives exist for any interested buyer.” Keith Gorny, Paddington

This means that older stock is now shifting, although overpriced property remains unlikely to attract much interest:

• “Properties that have been on the market for some time are now selling.” Mary Robinson, Wimbledon

Robinson adds that those who are considering selling before the Autumn, particularly of large family houses at the top end of the market, have a rare opportunity to receive multiple bids and greater prices than expected, due to the lack of available properties in this price range. 

Vendors may continue to enjoy this market for some time; it may be that we see a fall in stock levels again next month as we report the number of market appraisals falling back (23% below last April). 

Buyers Return

Buyers are certainly coming back and, although still fewer in number (12% fewer than last April), our managers have been commenting repeatedly on their motivation and this month clearly demonstrates this. Compared with last April we report that:

• Viewings are 1% higher
• Offers are 13% higher
• Net Sales are 12% higher

Furthermore confidence is stronger, with 35% fewer transactions falling through.  Prices are still sensitive in most price ranges, so asking prices must be realistic to attract interest and viewings.

• “Prices in the capital have largely recovered from the price drops witnessed at the end of last year and we are predicting continuing price stability in the coming months. In spite of the healthy trading conditions we would still advise vendors not to be too adventurous with their expectations as buyers remain price sensitive." Marc Goldberg, London Sales Director

 Goldberg echoes the view that buyer commitment is greater than for many months, pointing out that branches agreeing more sales and fewer transactions are falling through: 

• “Improved activity levels in the lower to middle price sectors has been most notable this Spring, and this is reflected in the average selling price being only 5% down on this time last year.”

Sales Agreed: The Best April for Years….

All in all we observe that the market is reasonably healthy, although in part, this is of course seasonal. It is indisputable that properties are selling, especially those that are well-priced.  We report only what we are seeing across our network and this month our data reveals that, whilst levels may be lower in some areas, the market is more robust than many press reports suggest: 

• “This has easily been our busiest trading period for over a year. The market has seen a dramatic upswing in the volume of trade.”  Robert Stewart, Fulham

• “We have experienced our most successful quarter since opening our office a year and half ago.” Keith Gorny, Paddington

• “The number of buyers registering is consistent with the normal seasonal level, and the number of sales we have agreed is the highest for any April in recent years.  This upsurge in sales has been stimulated by stable interest rates, an improvement in the selection of property for sale, and greater price realism from vendors.” Marc Goldberg, London Sales Director