When property news contradicts, break it down for the truth
This week’s property investment news is a perfect example of the need to analyse what has been reported. In short, the headlines read:
- House sales numbers are at their highest since before the GFC (2007)
- Sales numbers in London have collapsed to an eight-year low
- House supply has fallen to a 15-year low
- Landlords are flocking to sell their investment properties
As you can see, there’s a lot of contradictions in these articles. One of last week’s news releases even contradicted itself! Here’s the detail on this investment news, and a summary of what we believe you can learn from it:
House sales numbers are at a ten-year high
In its April 2017 House Price Index, Rightmove reported that:
- The number of houses sold had rose to their highest level since 2007 before the GFC and credit crunch crashed the market.
- The average house price rose by 1.1% on the month, to a record £313,655.
- The price paid by first-time buyers rose by 6.5% to a record £194,881.
Rightmove says that these figures should ‘mitigate pre-election jitters’.
So, it seems like the property market is doing very nicely, thank you, until you read that.
London house sales collapse
London estate agent Portico has studied Land Registry records for February and concluded that the level of sales transactions in the capital hit an all-time low. At 55 homes sold, sales in Westminster were the lowest ever recorded and 60% below the number completed in February 2009, when the last property market downturn is considered to have ended.
Sales across the whole of London have collapsed, Portico says. Numbers are down in boroughs as diverse as Wandsworth and Redbridge (where sales numbers are down by 68% year-on-year). However, Portico expects that activity will rise after the election when certainty has returned.
House supply is at a 15-year low
Analysis by NAEA Propertymark reveals that the number of homes on estate agents’ books fell to its lowest level since 2002 when records began. In March, there were only 39 properties available per estate agent branch, compared to 44 in February and 54 in March 2016.
The number of registered buyers fell, too. From 425 in February to 397 in March. It is down from 417 registered in March last year.
Landlords are flocking to sell their investment property
ARLA Propertymark reported that the number of landlords ‘selling up’ increased by 25% in March from February. Agents reported that an average of four landlords per branch is ‘selling up’ compared to three per branch a month earlier.
In the same report, ARLA Propertymark noted that the supply of rented properties in March per branch (183) remained stable compared to February, and up by around 8% compared to March 2016. It also noted that registered prospective tenants per branch rose from 34 to 36.
What you can learn from last week’s investment news:
Analysing this investment news flow, we can come to the following conclusions:
- Sales numbers show that the tables have turned in the UK property markets. London has been the star player since 2009. Affordability issues are now a concern in the capital, and home buyers and property investors are keener on regional markets and commuter towns.
- Even so, the headline fall in sales numbers in London shouldn’t be taken as a sign that the market has ground to a halt. This year’s February sales numbers are compared to sales numbers from February 2016. A year ago, sales numbers spiked higher, as buyers rushed to beat the stamp duty increases introduced in April 2016.
- If you smooth out this spike last year, sales volumes are expected to settle around 5% lower. Not quite the 65% plus in the headlines!
- The number of buyers registered with estate agents is likely to understate the actual number of buyers, while the number of registered sellers reflects the actual number of sellers.
- In March last year, there were 7.7 buyers for every home for sale. In March this year, this ratio had increased to 10.17. This is the important takeaway from the Propertymark analysis – the supply/demand dynamic is deteriorating rapidly in the UK. And this points to rising prices in the medium to longer term.
- It appears to us that the ARLA Propertymark data indicates not that landlords are ‘selling up’, but rather that they are adjusting their portfolios as rental demand continues to grow.
- There are 14 more properties rented per branch, and 36 prospective tenants on the books. In other words, demand for rental properties has increased from 203 per branch to 219 – an increase of 8%.
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