Vendor confidence rises despite inventory at ten-year high
An autumn surge in home prices reflects a rise in confidence amongst vendors and the market overall, according to Home.co.uk’s Asking Price Index for October.
Such optimism has been fuelled by expectations of gradual interest rate cuts over the coming months.
The same optimism has encouraged many potential vendors to commit, resulting in a ten-year high in sales listings.
Landlords downsizing their portfolios, particularly in London, has also contributed to this record number of listings. However, this is leaving renters facing a chronic lack of supply.
While the number of properties available to let has increased by 25% since October last year, the total remains 21% lower than in October 2019, Home.co.uk found.
Landlords clearly need more incentives (and assurances) to stay in the market and increase the supply of essential quality housing. Until this is achieved, renters will continue to suffer high rents and lack of choice.
Despite above average supply, the sales market is attracting sufficient demand to keep marketing times low and property turnover high. The wait-and-see period following the Truss-Kwarteng debacle appears to be over. Significant pent-up demand has been unleashed on the market over recent months due to the more favourable interest rate outlook. However, whether inflation is now truly under control remains to be seen.
At the regional level, the market is highly diverse in terms of price growth.
The northern regions of England, the West Midlands, Scotland and Wales continue to show consistent strength with growth over and above inflation. The North East, in particular, continues to impress with spectacular price growth over the last twelve months. Elsewhere, nominal prices have essentially stagnated this year and lost ground in real terms.
The East and the South West are the poorest performers over the last twelve months in terms of price growth. Asking prices increased a mere 0.4% in both regions, indicating that a price correction is still ongoing in these markets in real terms.
The South West shows the highest increase in Typical Time on Market of unsold property since October last year due to reduced demand.
Despite these sluggish regions, the overall UK property market is operating normally compared to pre-COVID years. Moreover, the sales market may well pick up the pace early next year should borrowing costs continue their steady decline, although this is far from certain as evidenced by a recent small rise in two-year swap rates.
Additionally, Rachel Reeves’ first Labour Budget of the new Parliament will likely affect sentiment significantly.
Overall, UK asking rent growth has slowed to zero, although this annualised national growth figure obscures the vast regional disparities between Greater London at -3.6% and the two best performers, Wales (+15.1%) and the North East (+12.0%).
Given that London rents increased by 32% over the last five years, we are now observing a market pricing correction that may persist well into next year.
The annualised mix-adjusted average asking price growth (sales) across England and Wales is now 1.7%; in October 2023, the annualised growth of home prices was -1.5%.