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December 2018: Continuing - And Worsening - Turbulence Guaranteed

Marcus Simpson

03/01/2019

Price rises in England & Wales at lowest level since for 5 years
Lowest sales volumes in the capital for an August since the crash
Good news on inflation vs salaries
Brexit uncertainty continues to affect market

[All statistics which follow are the most recently available figures from the Land Registry and the Bank of England unless otherwise stated.]

Slow-down in England & Wales' Price Rises

The average house price in England & Wales recorded for October was £242,871, a 0.2% decrease from September's £243,358 and 2.5% above the previous October's £236,917, although this represents the smallest year-on-year rise since July 2013. Peak prices were recorded in August when the average was £244,764.

Volumes - slight rally on the month but yearly declines continue

The Land Registry recorded 77,986 total house sales for August which was a 10.6% decline compared to the previous August (87,242) and the 9th consecutive month of year-on-year falls. This was the lowest recorded figure for August since 2012 (65,330).

There was, however, a slight month-on-month rally as volumes increased by 7.4%.

London - lowest volumes for an August since the crash

At 7,505 recorded sales for the most recent month's available data (August), this represented the lowest volumes for an August since 2008, i.e. before the last crash, when volumes dipped to 5,982.

Volumes were also down 15.9% year-on-year (8,921 for August 2017) and this was the 12th consecutive month of year-on-year falls.

As for England and Wales, however, there was a slight rally of 0.4% month-on-month.

Prices down by all measures

The average house price in the capital was £473,609, a 1.7% fall year-on-year (£471,762 for October 2017) and a 0.3% fall compared to the previous month (September 2018 was £475,066) and considerably below July 2017's peak of £488,527.

Wages Outstripping Inflation Rises

Measuring inflation via the CPI Index, it hit 107.0 for November, which represented a 2.3% rise year-on-year, which was the lowest %age rise since March 2017.

The average weekly salary, however, rose to £528 in October, which represented a 3.5% rise year-on-year. This was not only the highest year-on-year rise in a month since July 2015 but also the highest October rise since 2008 (3.6%) and 0.8% higher month-on-month.

The yearly equivalent salary, of £27,456, is at its highest level ever, and, most importantly, the rise has outstripped inflation meaning real wages are slowly increasing, signifying an increase in individual consumer purchasing power at last.

Brexit: turbulence forecast, particularly if process is disorderly

One expert from a large bank stated in media reports that rises in average pay growth were likely to be cancelled out by further increases in the base rate, currently 0.75%, nullifying any large effect on house prices. He was, however, optimistic that house prices would rise between 2 and 4% nationally, slightly larger than for this last year, with the caveat that any forecasting would be highly uncertain in the event of a disorderly Brexit.

A spokesman from a large independent mortgage brokerage stated that Brexit was already influencing the housing market, particularly in the capital, but pointed out that the Bank of England might choose instead to cut interest rates if Brexit, disorderly or otherwise, weakened the economy. He also stated that although various factors which influence housing demand, such as employment and consumer confidence, might change relatively rapidly, changes in supply, i.e. house building, take longer.

Arguably the continuing slow rate of house building will therefore continue to shore up house prices.

Additionally, the spokesman pointed out that longer term interest rates were falling which, as these translate into lower fixed rate mortgages, would also stimulate demand from buyers.

One curious – and highly unpredictable – effect from Brexit would be the position of housing in close proximity to the border between Ireland and Northern Ireland. Notwithstanding exactly how the border story might develop, the fall in the pound has apparently benefited traders north of the border whose customer base is mainly those from the Republic of Ireland and house purchases additionally might become more attractive.

There has also been reports of foreign investors pouncing on luxury properties in richer areas of London because of price falls brought on by Brexit uncertainty and the fall in the value of the pound, which once again might well stabilise some of the recent reported price declines.

Virtually all commentators, however, think that a disorderly Brexit is likely to bring uncertainty with it, at least in the short term, and this can only bring with it lower sales volumes in the first instance.

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Both demand and supply of housing falling says NAEA

The National Association of Estate Agents, the UK's leading professional body for estate agents, once again reported a fall in both housing demand and supply in its latest - November - report.

The organisation found that demand was lowest for a November (282 registered house hunters per member branch) since 2012 (263) and it was down year-on-year by 15% (333 in November 2017).

Supply also fell and for the second consecutive month with sales agreed also decreasing.

First time buyers took up the same proportion of all sales as for October - 23% - however year-on-year, sales to this group declined from 27%.

Perhaps evidence of Brexit uncertainty can be detected in these findings?

More than 4/5 properties still selling for less than asking price

The NAEA found that for November, 81% of all properties sold eventually went for less than asking price, however it did not give this news any prominence. It rather pointed out that 7% of properties were eventually sold for more than asking price.

This approach might be understandable, given for how long the vast majority of properties have been being sold for less than asking price, however we still maintain that this stark fact betrays one of the fundamental issues which the housing market in England and Wales continues to be affected by.

Simple economics dictates that sales volumes, all other things being equal, would increase if prices were to decrease. But prices, if not increasing at the rate they were, still ultimately remain far higher than expected.

Andrew Boast, co-founder of SAM Conveyancing, said:

"There's increasing evidence that Brexit has already affected people's purchasing decisions in the housing market in England and Wales. Undoubtedly the market, however, isn't uniform: there's also evidence that foreign investors are taking advantage of lower prices and the fall in the value of the pound to buy houses, particularly in the capital and the luxury end of the market .

"Additionally there are areas of the UK such as, for example, the areas near Northern Ireland's border with Ireland, where it'll continue to be a roller-coaster ride for traders in general as well as house purchasers .

"Whatever happens, assuming Brexit goes ahead, the more disorderly it is, then the more uncertain will be the outlook for the housing market, particularly in the short term, and people are generally more likely to postpone purchasing and selling houses as a result .

"Whatever it chooses to do, the Government would be well-advised to be firm in its decisions to provide the certainty which all markets benefit from. Additionally it should 'put its money where its mouth is' and deliver far more on its promise to increase the supply of affordable housing. Brexit or no Brexit, The country as a whole continues to have a housing crisis which the Government has done very little to combat. "

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