Market pace quickens while stock shows small uptick
Supply remains exceptionally tight in the sales market despite a small uptick in new instructions last month, according to Home.co.uk’s Asking Price Index for February.
The sales stock total also rose slightly last month for the first time since October 2020 but remains at historically unprecedented low levels. The uptick in supply is encouraging in the sense that the severe imbalance between supply and demand may be eased over the coming months as vendors take advantage of the current high prices. However, for the time being, agents continue to scrabble for sales inventory in this sellers’ market.
Unsold properties are spending much less time on the market than they were a year ago. Moreover, the Typical Time on Market has dropped suddenly since last month’s reading, indicating that the market is picking up the pace earlier this year. This median measure for England and Wales now stands at 87 days and has not been this low in February since 2007. Some regions are indicating a much faster sales turnover, for instance the Typical Time on Market for the East Midlands is a mere 67 days.
This rapid throughput of sales stock has yet to translate into significant price rises overall this year. However, bullishness is clearly already apparent in some regions. A 0.8% rise month-on-month in both the North West and East of England indicates that vendors remain highly confident as we head towards the traditionally busy spring months. In fact, prices have risen in five English regions and Wales since last month.
Meanwhile, monetary inflation is climbing higher and higher. In such an economic environment, where the purchasing power of sterling is falling relative to goods and services, it would appear unlikely that we will see nominal falls in home prices. However, in real terms, growth is less than zero overall. The latest ONS figure for RPI (ex.housing) is 8.4% for December, making annualised real home price growth -1.5% for that month. We estimate that real home price growth is currently around -2.8% this month. Expectations are that the Bank of England will again nudge up interest rates this year in response to rising inflation and we comment on that threat to the property market later in this report.
The rental sector is also dominated by scarcity. The total stock of available properties to let has fallen a massive 58% since February 2019. This lack of rental stock has been driving up rents across the country, as tenants increasingly compete for what little stock is available.
Greater London is now the main driver of rental inflation overall, as tenants flock back to the capital post-Covid restrictions and short-term lettings recover their popularity. Rental affordability is looking stretched in all regions, including London, but due to supply constraints, we do not expect significant rent falls this year. More likely is a period of consolidation at these higher levels.
The annualised mix-adjusted average asking price growth across England and Wales has nudged up to +7.0% this month; in February 2021, the annualised rate of increase of home prices was 4.5%.