The cost of living crisis and high mortgage rates have weighed on the housing market for much of the year but there are some signs of improvement, according to the Royal Institution of Chartered Surveyors (RICS).
The professional body seeks views from its agent and surveyor members each month to get a sense of the housing market mood and factors such as new listings and sales and outlooks for house prices have been negative for much of 2023.
It echoes official data from the Office for National Statistics as well as Halifax and Nationwide house price indices, which have shown prices have fallen annually this year.
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Property sales have also dropped and sellers are cutting prices to attract sellers.
But there are finally some positive signs from the RICS Residential Market Survey, which suggests sentiment has improved thanks to mortgage rates falling in recent weeks.
The survey produces a net balance score based on if activity is going up or down on a range of indicators such as house prices and sales.
More agents and surveyors are now expecting sales to improve, according to the report.
A net balance of +6% expect sales to improve over the next three months, rising to +24% for the forthcoming 12 months.
These are the highest readings since early 2022.
Other factors such as the outlook for house price growth are also improving but remain negative.
Cautious optimism returns to the market
Buyer budgets have been hit by higher mortgage rates, which has contributed to a slowdown in housing demand and fall in prices.
Further house price declines are expected next year even if mortgage and interest rate drops.
This is feeding into wider market activity, according to the RICS.
The net balance reading for new buyer enquiries was -14% in November, the least negative figure since April 2022, RICS said.
A net balance of -11% said sales were down, but this is also an improvement on the -23% recorded in October.
The majority of regions are still reporting house price declines, with a net balance of -43% expecting a dip over the next three months, but this is better than the -61% reported last month.
The outlook is better over 12 months, with -10% expecting a house price decline, down from -43% previously.
Rent rises continue
The market remains positive for buy-to-let.
The RICS figures show tenant demand continues to rise, according to +20% of respondents.
But this marks the most modest reading since January 2022.
RICS highlights that the supply challenge remains though, with landlord instructions remaining in decline. Going forward, while twelve-month expectations have eased, rents are still projected to rise by close to 4% in 2024, according to the survey.
“The latest RICS Residential Market Survey provides further evidence that sentiment is a little less negative than previously was the case with, critically, the new buyers enquiries indicator finally beginning to stabilise,” says RICS chief economist Simon Rubinsohn.
“This is being aided by increased confidence that the interest rate cycle has peaked which is reflected in somewhat more competitive mortgage products coming to the market.
“However, with the cost of money likely to remain elevated for some time to come and the economic outlook still downbeat, it is not surprising that the overall tone to the anecdotal remarks from survey respondents is still quite cautious.”
Tom Bill, head of UK residential research at Knight Frank, suggests falling inflation and speculation about interest rate cuts have boosted activity.
“Speculation is turning to the timing of a bank rate cut rather than the size of the next rise, providing a boost to sentiment that means transaction volumes should be higher over the next six months than the last six,” he says.
“The key uncertainty now is political ahead of a general election next year. Not only the uncertainty of when it will be called but a familiar question of whether the government will be forced into action sooner rather than later due to internal divisions.”
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