January is that time of year when the economists analyse trends from the previous year and predict what is going to happen over the next 12 months. The housing market generates plenty of opinion and views of different degrees of optimism or pessimism and we analyse the stances given by the experts
Over the past year, average house prices across the UK have risen by 2.5% [Source: Nationwide] and by 31% over the past six years [Source: Rightmove]. More locally, based upon Land Registry data, the average price of a home in the Mendip District now stands at £247,511 having increased by 3.69% over the past year. In Bath & North East Somerset, the average value is £333,157, an increase of 5.83% fuelled by the popularity of Bath.
During the autumn, there were indications that the market across the UK was beginning to cool and there is a perception that values locally are beginning to stagnate. Most are now predicting that values will be broadly flat or may increase modestly over the next 12 months with London facing much greater uncertainty with a consensus that values will fall by as much as 4% in the centre of the capital [Source: Rightmove]. Taking the views of their members into account, the RICS have formed the view that the housing market will “come to a halt” and “that it is difficult to envisage a step up in emphasis”. This is probably being too pessimistic and the views of Nationwide, predicting a levelling of values, and Halifax, predicting increases of between 0% and 3% are more realistic. Housing research company, Hometrack, are the most bullish in predicting national increases of 3% whilst others are more conservative - Rightmove predict increases of 1% and Morgan Stanley 1.6%.
With the average price of a home in London 14.5 times the national average income, it is easy to accept that the market may also be cooling as a consequence of a lack of affordability. In Mendip, the average price of a home is 10.4 times average earnings, a similar figure to BANES. At a time of more constrained lending, it could be the case that the markets are adjusting to compensate for the tighter financial conditions and an increased inability or unwillingness for potential home buyers to incur the costs of moving.
Brexit has certainly led to greater economic and political uncertainty and this has weakened consumer confidence. Confidence has been eroded further by rising interest rates and falling wages in real terms. Those who would normally consider upsizing have chosen to stay put and, perhaps, extend instead in order to fulfil their housing needs. This has led to the number of houses being marketed to be very low leading to those actively looking to purchase being frustrated. This together with low levels of house building, nationally, is helping to support values and the right properties in the right locations do tend to readily sell.
In the autumn statement, the Government sought to encourage first time buyers to get onto the first rung of the housing ladder with no stamp duty being payable on properties up to £300,000 in value. This will help invigorate the lower end of the residential property market but the Government and others are probably being too optimistic on the impact of the measure as the RICS and others consider there will be little effect.
So, looking forward, it seems likely that house values will go up during 2018 but at a much slower rate with a lack of supply and ongoing uncertainties in the wider economy weighing on prices. Whilst the impact of Brexit may be overstated, the clearer the EU picture becomes the more confidence buyers and sellers will have and this could lead to increases in values returning to pre-referendum levels. Of course, if the negotiations do not proceed well then the opposite consequences may result.
Sellers and buyers should always bear in mind, however, that purchasing property is not necessarily an investment but the long term purchase of a home and wider benefits are likely to accrue from moving when it is right to do so to satisfy personal needs rather than waiting for “the market”.