May 2024 House Price Index Report
This article adapted from Zoopla’s May House Price Index, image from article
Rising supply to keep house prices in check
The sales market continues to record increasing levels of activity. The number of sales being agreed is higher year-on-year across all regions and countries of the UK. The flow of new supply into the market is growing faster than sales as market confidence improves. House prices are broadly static, falling 0.1% over the last 12 months. They will continue to be kept in check by rising supply.
Most homes for sale in over 8 years
There are more homes for sale than at any point in the last five years, as sellers return to the market in growing numbers. The average agent has 31 homes for sale, up 20% on this time last year.
In value terms, there is £230bn of housing for sale, 25% higher than a year ago. The value of homes for sale has grown faster than the number of homes due to a rapid recovery in the supply of 3 and 4-bed family homes, after a chronic shortage over the pandemic.
Many existing homeowners delayed moving decisions in H2 2023, unsure about the impact of higher borrowing costs on house prices and buyer demand. The decline in mortgage rates, together with rising sales volumes and firmer pricing, has brought more sellers back into the market, many of whom are also buyers.
Most homes for sale are new-to-market. However, it is important to note that almost a third of homes currently available for sale (31%) were also listed for sale in 2023 but failed to find a buyer. This is not surprising, as demand for homes fell over the second half of the year as mortgage rates jumped higher.
Two-fifths (43%) of these homes that had been on the market in 2023 have had their asking price cut by more than 5% to attract demand. This highlights the importance of pricing homes correctly at the outset, rather than aiming too high and not attracting buyers.
Sales are up but not as much as new supply
More supply means more would-be buyers, as most sellers are also buyers. The number of homes which are having a sale agreed is 13% higher than this time last year. Sales volumes are continuing to recover back towards the long-run average. Sales agreed have grown 22% across the North East but are up by just 1% in Wales.
The other notable trend is that the number of homes for sale has generally grown faster than the increase in sales agreed. This is replenishing the supply of homes for sale and delivering buyers more choice. In most areas supply is growing faster than sales agreed.
The South West of England has recorded a 33% increase in homes for sale compared to last year, with an above-average increase in the expansion in 4-bed homes for sale.
Tax changes for holiday lets and the prospect of double council tax for second homes are likely to be encouraging some owners to sell. This exacerbates the expansion in homes for sale across the South West, which has the highest concentration of holiday homes.
Rising supply to keep house price inflation in check
The growth in available supply is welcome news, after several years where scarcity of supply limited sales volumes and pushed up house prices. A return to greater availability will support the growth in sales.
However, we expect this expansion in supply to keep house price inflation in check over the remainder of 2024.
Our latest index finds that annual UK house price inflation remains slightly negative at -0.1%. There has been an increase in house price inflation over the last quarter (+0.4%) in response to more sales and firmer pricing, but this quarterly growth rate has slowed over the last month. We expect UK house price inflation to be flat over 2024.
General Election impact?
The announcement of the general election on 4th July 2024 has come earlier than many expected. Elections normally lead to increased uncertainty and some stalling in market activity.
There are currently 392,000 homes in the sales pipeline working their way through to completion over 2024. This is 3% higher than this time last year and we don’t expect to see buyers already in the process of progressing to sales completions pulling out.
The impetus to move remains for many households. In particular, first-time buyers are looking to escape the rapid growth in rents in the private rented sector. Similar is true of upsizers, many of whom delayed moving last year when mortgage rates moved higher.
The election announcement is likely to stall the pace at which new sales are being agreed in the coming weeks, as we run up to the start of the summer slowdown.
Most buyers well into the home buying process close to agreeing a sale will ideally want to push through and agree sales now. Those who are earlier in the process may look to delay decisions until the autumn after the election is over.
Overall, we don’t see the election having as big an impact as in previous years, particularly as there is not a huge divide in policy between the two main parties.
There are also few specifics on housing, other than a focus on reforming the private rental sector and boosting housing supply. However, sales completions over 2024 may now fall slightly short of the 1.1m we expected for 2024.
What businesses and landlords will want to see from all political parties are concrete plans for how we can boost housing supply across all tenures, while getting the right reforms into the private rented sector to ensure we maintain supply while giving renters more protections.
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