The Garrulous Jay – The Silent Slump

The UK residential property market is slumping but hardly anyone seems to be talking about it. At least that’s how it feels to me…

Anecdotal evidence from my personal experience and that of clients suggests properties are being marketed and sale prices agreed at levels materially below those at which purchases were made as long as a decade ago.

What is therefore surprising to me is how little coverage this is receiving in the media. Twenty years ago a residential property market that could potentially be falling by 10-20% would be front page news. Today this is not the case.

I have been perplexed by this but, as with so many things, it turns out it’s not as simple as my limited sample implies.

The headline figures suggest a market that is actually pretty resilient, if not in rude health.

Transaction volumes are at levels comparable to the 2016-19 period before significant volatility was introduced by tax changes, the pandemic and the jump in mortgage rates in the subsequent five years.

Similarly, the headline data suggests prices are not falling by the double-digit amounts implied by my personal experience. The Lloyds and Nationwide house price indices showed annual growth of 0.1% and 2.2% in July. Rightmove’s annual trend in August showed an increase of 1.0%, with Zoopla’s figure being 1.3%.

So far so benign, although it’s worth noting all of these figures are below the annual rate of CPI of 3%. The commentary accompanying some of these figures may also be telling. Zoopla noted a sharper than expected fall in agreed sales in July, while Rightmove observed the steepest August price drop since 2018.

What may therefore be happening is the market is grinding to a halt with the current pricing data not yet reflecting this.

This possibility is supported by analysis showing that the time to sell is increasing. A study by Rightmove finds that listing-to-completion time is the longest it’s ever been at 216 days, while about 30% of homes listed since Q2 remain unsold without a price cut.

The headline numbers also mask a market materially divided along two dimensions: regional disparity and property type.

There is a sharp north-south divide, with more affordable regions continuing to experience robust price momentum of more than 4%, contrasting with prices in London down 2.5% or more.

Flats are also bearing the brunt of the downward pressure on valuations, with larger properties being less impacted.

Many of the indices fail to reflect these differences, whilst they also explain the bias in my personal perception.

With macroeconomic and political uncertainty continuing, the existing oversupply of flats persisting, but affordability for first-time buyers still a challenge, it’s hard to see the bottom end of the market in London and the south-east recovering in the near-term.

While this may start to provide opportunities for those seeking to get a foot on the ladder in the longer-term, the knock-on effects could also spread beyond the areas and properties most affected today.