Brexit: House Prices Up but Sales Volumes Dire
30/01/2020
120
9 min read
So we're still getting used to full steam ahead on Brexit and looking forward to less choppy waters now we've some semblance of certainty on the country's direction. Given the size of the General Election victory, one shouldn't be surprised about the optimism - but equally expectation - regarding Boris Johnson's new government.
Without wishing to pour too much cold water on things, optimism can certainly get you 'out of the blocks'. But much more is needed to get you fully competing in a race, let alone winning. And let's not forget that the UK is officially still in the midst of a housing market crisis. Given these ideas as the framework with which to view the current housing market, it's once again time to pore through the fundamentals...
[All statistics which follow are the most recently available figures from the Land Registry and the Bank of England unless otherwise stated.]
England and Wales: optimism leads to price increase despite fall in sales volumes
Average prices in England and Wales are showing signs of reviving, with a slight 0.4% increase month-on-month and a larger 2.2% rise compared to the year before, to £246,878, in the latest month's available figures (December).
Ceteris paribus, although the monthly rise was comparatively small, it would be difficult not to link this to the greater certainty of the country's direction of travel after the landslide Conservative victory in the December General Election, which ushered in the end of the Brexit debate.
House moves slowing to a standstill in December in the run-up to Christmas is normally to be expected; so this monthly increase in average prices has to be viewed as bucking more commonplace trends.
The price increase is even more marked given that the most recently-available sales volumes figures – for October – showed a significant decrease, to 65,172: an 18.3% fall month-on-month and a 22.1% fall year-on-year. The general trend for sales volumes has been a downward one year-on-year: in the last year, volumes only rose in four months out of twelve.
Brexit optimism appears to be great enough to ignore price rises despite continuing sales volume falls – the fewer buyers around have been prepared to pay a little more to get their purchases done.
London's prices steady despite significant fall in sales volumes
If the capital continues to be regarded as the bellwether for the country's housing prices and sales volumes, then its recent behaviour is showing a very close relationship to the wider movements in England and Wales. Month-on-month, average prices fell slightly, by 0.5%, to £475,458, however this represented a 0.5% year-on-year rise, offering a degree of balance, and making an argument that Brexit optimism has been sufficient to offset an overall prevailing year-on-year story of price falls (for 10 months out of 12).
Very similarly to England and Wales, sales volumes fell significantly from September to October, by 21.5% month-on-month and 18.9% year-on-year, to 6,516.
Brexit optimism has – for now – stabilised yearly price falls in London, despite there being worryingly fewer buyers. Once again, perhaps it’s a case of "Get that purchase done, don't worry about the price"…
Real wages are still in the doldrums
Inflation, according to the CPI index, stayed at the same level, 108.5 for December as for November and showed a 1.3% increase year-on-year. There are currently no great indications of a Bank of England base rate rise – the rate has stayed at 0.75% since August 2018 – although there are live discussions with a considerable number of pundits arguing for an increase to encourage consumers to become more responsible regarding their indebtedness and borrowing.
However it's highly likely that we won't see a rise in rates for a while yet; despite signs of popular optimism, as referred to, in the wake of the General Election. Realistically uncertainty remains in most business sectors as the details of the country's trading relations, particularly with the EU, remain to be thrashed and fleshed out. The potential for over-caution to cause postponement of business decisions still has to ability to disrupt many markets and destabilise growth areas.
The Bank of England is taking a more cautious view than the country at large. This spells continuing good news for potential home purchasers regarding mortgage rates…but prices still remain high for first time buyers.
Nominal weekly wages rise
Weekly wages rose to their highest level ever, to £544 per week, equivalent to £28,288 per year. This represented a 0.2% rise month-on-month and 3.4% year-on-year. It must be stressed, once again, that these are nominal wages: many commentators frequently refer to real wages not yet rising significantly above pre-Credit Crunch levels.
In fact there's considerable evidence that house prices rose slower than the general cost of living in the last decade despite house price rises being more than considerable in absolute terms…
Taken together this nominal wage increase only eclipses the stable monthly inflation index position (0.2%) by a fractional amount and if we add in the rise in average house prices in England and Wales, this doesn't spell any increase in potential purchasing power of substance.
Let's hope that Brexit optimism translates into overall business optimism and increased activity…
Mortgage approvals up, remortgages down
The optimism posited for various reasons apparently fed through to mortgage approvals – a sign of house-buying – which were up. At 64,994 for November this was an increase of 0.5% month-on-month and 1.4% year-on-year.
However, if there are observed decreases in sales volumes, particularly over the same period or near to it, there has to be some other explanation. Remortgage approvals were down, to 48,425, a fall of 5.3% month-on-month and 0.8% year-on-year, which normally might also imply that people were choosing to move homes in preference over staying put and investing in the same property.
The simplest explanation – and Occam's Razor always argues for looking for simple explanations first – is that cash buyers must have recently been in decline and that this must have resulted in the decreased volume levels overall.
And the increase in mortgage buyer approvals might also explain the overall price rise in England and Wales and the stabilisation of London's prices which had previously been falling. It might be that there's heavy competition at the lower end of the market for property – and this would be further bolstered by evidence of an increase in first time buyer numbers…
In fact, finding evidence for this argument wasn't too difficult…
Halifax: first time buyer house price rises massively outstrip rest of market
Halifax recently released data in media reports which stated that the average cost of a first-time buyer home grew by 9% during 2019, despite property prices being stagnant across much of England and Wales. According to the lender, first time buyers now spend an average of £231,455 to purchase their first home, an increase of £18,252 year-on-year.
In comparison, average house prices rose by 1.4% in 2019, according to figures from Nationwide in media reports, but some areas saw prices decline, including London where prices fell 1.8% during the year.
Some experts have argued that this is because this group are now buying larger properties with a view to not having to move as and when they start families for example, however there's no escaping evidence that Help to Buy has also pushed up purchase prices as new homes are typically more expensive than existing ones, and the continuing relative cheapness of mortgages (cf. low base rates) has helped to encourage first time buyers to buy.
Although some areas – particularly in the North East of England – have become cheaper, particularly for first time buyers, the least affordable area is London and Hackney's average prices in particular are around 12 times national average earnings.
The average first time buyer deposit, according to Halifax, was £46,187 in 2019, a 7pc increase compared to the previous year, and eye-wateringly large. These first time buyers must therefore be the few that are in very high wage/earnings sectors and/or those with very large gifted deposits from richer parents and family.
NAEA: First Time Buyer sales up but overall demand falls
Finally, further evidence regarding first time buyer activity came by way of the most recent National Association of Estate Agents' housing market report (for December.
The number of sales made to first time buyers increased marginally in December, rising from 28% in November to 29%. Year-on-year, this was a 5% increase, however housing demand, measured by the number of house hunters registered per estate agent branch, decreased in December, falling from 332 to 313. This was the lowest figure seen since June 2019 when there were 305 prospective buyers registered.
And…to finish off in sadly nonplussed but predictable fashion…some 89% of properties sold for less than asking price last month…
Andrew Boast, co-founder of SAM Conveyancing, said:
"December's landslide General Election victory for the Conservative Party has finally provided certainty regarding Brexit. We are leaving. Although this won't please everyone, there's a palpable sense of relief from most quarters and welcome for what must be the end of the main debate. Most of all, businesses can at last rely on what the country's direction of travel will be in this regard and start making more permanent plans."
"That said, most experts have soberly predicted that in many ways, this is just the start of a journey. Prime Minister Boris Johnson has his work cut out towards bargaining over new trade deals, not least with the EU bloc we've just left. And as the dust settles, it's clear that he'll have to devote at least some of the new Government's energies towards pressing issues, particularly on the domestic front, with the UK's housing crisis hopefully at the very front of the queue for attention."
"While it's worth recognising some of the present optimism filtering into the market, particularly in keeping house prices buoyant, the persistent malaise of under par sales volumes urgently needs to be addressed. In particular, first time buyers are having to pay far too much to get that all-important first foot on the property ladder and there are far larger numbers of would-be first time buyers who, as yet, simply have very little chance of making this first step. Home ownership should not just be the preserve the best-resourced and Johnson, if he truly is a One Nation Conservative, will be more proactive in his approach to curing the dysfunctional situation which still pervades even amidst the other pressing demands on his energies."
"We therefore wish him and the new Government the best in their coming endeavours and will continue to observe the developing situation carefully."
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