Market Survey: Recovery in buyer demand falters slightly amid interest rate uncertainty
- New buyer enquiries see a modest dip alongside a softening in momentum reported across the sales market
- National house price indicator slips back into slightly negative territory
- Near-term expectations still point to the recovery getting back on track in the months ahead
Residential Sales
The May 2024 RICS UK Residential Survey results are symptomatic of a slight setback for the sales market over the month, with most of the indicators tracked deteriorating to a certain extent. This appears to be linked to the recent scaling back in expectations around the degree of monetary policy loosening likely to be pushed through by the Bank of England during the second half this year. Nevertheless, respondents still foresee a modest recovery in residential sales volumes getting back on track over the months ahead. For the aggregate new buyer enquiries series, the latest net balance reading of -8% is down from a figure of -1% beforehand. As such, this is consistent with a modest drop-off in demand over the month. Furtheremore, the latest return marks the softest reading for this metric since November of last year. When viewed at the regional level, the most noticeable decline in buyer enquiries came in the South East and South West of England (exhibiting net balances of -27% and -23% respectively). At the same time, respondents also reported a fall in the number of sales agreed during May, evidenced by a net balance reading of -13% being recorded for this month (down from +4% last time). Going forward, despite the recent stumble, near-term expectations point to sales volumes picking up modestly over the coming three months (posting a net balance of +6% compared to zero previously). Moreover, the outlook for twelvemonths ahead remains relatively upbeat, with a net balance of +43% of survey participants anticipating an uplift in sales activity (an increase from a figure of +33% in April). Alongside this, the flow of sales instructions.
Alongside this, the flow of sales instructions coming onto the market continues to rise, with the new listings indicator registering a net balance of +16% in May. As a result, the volume of fresh instructions coming onto agent’s books has now improved for six consecutive months. Painting a similarly positive picture for changes in supply on the second-hand market, a net balance of +17% of respondents report that the number of market appraisals undertaken of late is higher than a year ago (representing the fifth reading in expansionary territory for this metric). Looking at the most recent trend in house prices, the headline series retreated in May, posting a net balance of -17% compared to -7% in the previous iteration of the survey.
Consequently, having held broadly steady in both March and April, the latest reading (being the most negative return since January) suggests that house prices fell slightly during the month. That said, while prices pulled back to a certain degree in virtually all regions of England during the latest survey period, Scotland and Northern Ireland continue to see a very different picture, with prices remaining on an upward trajectory in both cases. With respect to the near-term outlook for prices at the national level, expectations suggest that some further downward pressure could be seen in the coming three-months, albeit the net balance of -12% is only very marginally negative. At a slightly longer timeframe however, contributors remain firmly of the view that house prices will move higher over the next twelve months. In fact, the latest net balance of +41% for the year-ahead price expectations indicator is the most elevated reading since April 2022 (up from +38% last time).
Lettings
In the lettings market, tenant demand appeared to regain some momentum over the month, with the May net balance climbing to +35% compared to a reading of +10% previously (part of the nonseasonally adjusted monthly lettings dataset). Alongside this, landlord instructions were more or less flat (net balance -3%), marking the first occasion since August 2022 in which this measure has moved into neutral territory. Going forward, near-term expectations point to rental prices continuing to move higher, even if the pace of growth is likely to be more modest than that seen during much of the last eighteen months (the current net balance of +35% is noticeably more moderate than the +53% average reported throughout 2023).
Ray Smith, FRICS – Senior Officer & Business Leader comments on the latest UK Market Report
“Our own experience of the sales market is that activity is holding up well and resisting the drag in activity that can come just before an election. Buyers seem confident in their buying activity. There is a greater choice of stock for buyers to look at. This is encouraging people who looked at a move post-covid but did not transact, however, it does mean that buyers are price sensitive and will only view properties that closely match their requirements
After a slow start to the year, tenant demand has returned to typical levels, despite the fact rents have reached an all-time high. This recovery in demand indicates that the rental market is stabilising, although the high rental prices remain a significant factor for both tenants and landlords.
A noticeable trend is that some properties are lingering on the market for longer periods. This is primarily due to landlords setting rental prices above the already high current market values, hoping to capitalise on the high demand. However, this strategy often backfires, resulting in extended vacancy periods for these overpriced properties.
Properties that are priced in line with market expectations are seeing strong interest from tenants. These well-priced rentals are quickly snapped up, reflecting the readiness of tenants to commit when they perceive value for money. This underscores the importance of accurate pricing in a competitive rental market.
Overall, while the rental market faces challenges due to high rent levels, there remains a healthy demand for reasonably priced properties. Landlords who adjust their expectations and set realistic rental prices are more likely to secure tenants swiftly, ensuring minimal vacancy and steady rental income”.
