Prices flatline as stock levels surge
Home price growth has stalled and the stock of unsold property has surpassed the 10-year average to reach a new 30-month high, according to Home.co.uk’s asking price index for July.
However, it should be noted that both prices and stock levels typically peak during the summer. It is, therefore, not yet clear whether the UK housing market has become collateral damage in the Bank of England’s belated efforts in the war on inflation, as was the case in 2008.
Last month’s rash decision by the Bank of England to hike the base rate by a further 0.5% to 5.0% has certainly rattled some nerves. The UK property market was steadily regaining confidence in the wake of the rapid price correction at the end of last year with a return to slow growth, but now many fear that increased borrowing costs, along with negative sentiment in the media, may tip the market into a downward spiral.
Rapidly rising stock levels are always a cause for concern. Pricing had, until now, been benefitting from low stock levels, but last month’s surge over the 10-year average gives cause for anxiety. However, stock levels were recovering from rock bottom after the Covid boom depleted agents’ portfolios to unprecedentedly low levels. Also, it should be noted that supply of new instructions remains subdued compared to pre-Covid years and is currently 8% less than in June 2018.
Furthermore, prices continue to rise in several regions. Marketing times remain in the normal range and in no way indicate an overall slowdown. The northern regions and Scotland and Wales continue to show considerable improvements on their July 2018 figures, while London and the Midlands, the East and South East of England show slight increases compared to their pre-Covid figures. The Typical Time on Market for the South West is unchanged from July 2018.
Most key indicators show that the sales market is still in good shape. Moreover, it must be emphasised that unprecedented demand in the rental market is playing a key role in restricting supply in the sales market.
Rising yields and short void periods (typically less than three weeks) ensure that letting remains an attractive option for hesitant potential vendors, while also acting as a safety valve for the sales market.
Rents continue to rise overall. The mix-adjusted average annualised rise for the UK stands at 11.8%. Rent inflation in the West Midlands is now over 18% and rising mortgage rates are only likely to make the situation worse for tenants, as landlords are obliged to pass on their increased costs.
The annualised mix-adjusted average asking price growth across England and Wales is now -1.5%; in July 2022, the annualised rate of increase of home prices was 6.1%.