Expert examines the challenging conditions facing residential sales
Indicators on demand, sales, new listings, and house prices were all negative in March, the Royal Institution of Chartered Surveyors (RICS) has reported.
The housing market’s challenging economic environment has certainly put pressure on both prospective buyers and sellers.
Higher costs due to consumer inflation has meant a greater strain on household finances, discouraging some prospective buyers from committing to important financial decisions.
Vicki Harris (pictured), chief commercial officer at Kensington Mortgages, acknowledged the current economic outlook had almost certainly contributed to a reported fall in demand, and in turn sales and listings.
“While interest rates have calmed since the market turmoil caused by last year’s mini-budget, lending conditions remain tighter than in recent years, also serving to put off people from moving forward with their purchases,” Harris said.
Market conditions
The expectation was that inflation would steadily improve over the course of the year, said Harris, as the market continued to adapt to a higher interest rate environment.
The Consumer Prices Index (CPI) rose by 10.1% in the 12 months to March 2023, down from 10.4% in February, however the majority of economists had expected for inflation to decline to single digits in the latest reading from the Office for National Statistics.
“While the latest inflation reading defied expectations by remaining in double digits, the economy is still expected to cool as the year progresses, which will hopefully ease the pressure on household finances and improve demand,” Harris said.
She also believed that there may be a rise in listings as sellers adjusted their expectations regarding pricing, in line with the tougher market conditions.
Similarly, Harris said the market could experience greater demand as prospective buyers altered their purchasing goals, opting for smaller properties to avoid higher borrowing costs.
Spending power
Harris said cost-of-living pressures would continue to restrain the spending power of prospective buyers this year.
“The most recent inflation reading has ensured a further hike to the base rate in May and increases the likelihood that the Bank of England will keep rates elevated for longer than some were perhaps hoping,” she said.
This would impact mortgage rates, and Harris believed potentially add to the slowdown in market activity as potential buyers delayed their purchase plans.
In the near-term, Harris said sellers might also decide against listing their home to avoid selling at a reduced price.
“Although certainly at a slower rate than recent years, reports that house prices are continuing to grow has distanced the market from the crash predicted by some observers towards the back end of last year,” Harris said.
She added that other sources had also highlighted that the number of properties listed for sale had been improving.
“We will continue to see the market adapt to the higher interest rate environment, particularly as the Bank of England approaches its terminal rate, likely towards the second half of the year,” Harris said.
Indeed, Harris said the latest figures from the Bank of England revealed that mortgage approvals rose for the first time in six months in February, signalling that prospective buyers were perhaps pursuing deals despite elevated borrowing costs.
What are your expectations for the residential market over the course of the year? Let us know in the comment section below.
