Unfortunately, having started the year showing a marked pick-up in momentum, sentiment across the UK housing market predictably deteriorated sharply in March as highlighted by the latest RICS UK Residential Survey results. Government measures introduced to combat the spread of the coronavirus have required estate agents to close their offices, meaning much activity has effectively been frozen over the coming months. The situation is evolving rapidly, and it remains unclear how long such restrictions will remain in place. However, as is the case across many sectors of the UK economy, these closures are going to take a significant toll on the outlook for the market this year.
In terms of new buyer demand, a run of three successive monthly increases was brought to an abrupt end, with a net balance of -74% of respondents across the UK
as a whole reporting a fall in enquiries during March. Likewise, the uptick in sales volumes that had been seen since December 2019 went into reverse, evidenced by a headline net balance of -69% of survey participants noting a decline over the month. Unsurprisingly, sales fell across all parts of the UK when compared with February.
Looking ahead, near term sales expectations are of course deeply negative following the government’s lockdown measures, with the latest net balance of -92% representing the weakest figure since the inception of this series back in 1998. At the twelve month horizon, sales expectations are a little less downbeat, albeit a still sizeable net balance of -42% of contributors expect sales to be down over the year ahead.
New instructions being listed on the market for sale also dropped back sharply, with a net balance of -72% of contributors reporting a fall over the survey period.
In keeping with this, inventory levels slipped noticeably during March, hitting a fresh record low of 40 properties, on average, per branch.
The survey’s headline indicator on prices (which captures changes over the past three months) remained slightly positive in the latest results. In fact, a net balance of +11% of contributors saw prices increase in the three months to March, although this reading has eased from +29% in February. When disaggregated, Northern Ireland, Scotland and the South West of England have recorded the strongest growth (in net balance terms) over the last three months.
That said, prices are not likely to continue on their recent upward trajectory for much longer. Indeed, the survey’s indicator capturing near term price expectations sunk from a net balance of +21% in February, to post a figure of -82% in March. With regards to the twelve month view, price expectations are somewhat less negative, as a net balance of -38% of respondents envisage house prices falling over the year to come (this is down from a positive net balance of +71% in February however).
It is interesting to note that sentiment on the medium term outlook for prices has proved a lot more resilient. Respondents currently expect price growth to average just over 2.5%, per annum, over the next five years. This remains closely aligned with the average five-year house price inflation projections seen over the past twelve months.
In the lettings market, tenant demand was more or less stable in the three months to March (non-seasonally adjusted series). Alongside this, landlord instructions fell once more, with a net balance of -32% of contributors noting a decline. Again, the virus outbreak has had a significant negative influence on near term rental growth projections, which slipped into negative territory during March. While rents are now seen stagnating over the next twelve months, medium term projections have only been downgraded slightly compared to the February figures, with average annual growth of 2.5% anticipated through to 2025.