Demand from homebuyers fell sharply in August, at a pace not seen since the start of the Covid pandemic, but a continued shortage of available homes is helping to support prices for now, according to the Royal Institute of Chartered Surveyors (Ricks).
Its latest monthly report shows how the cost of living crisis and rising interest rates are impacting buyer demand, with buyer inquiries, sales and new instructions all falling in August.
Rics says this is the fourth consecutive month of negative readings for new buyer inquiries, with the numbers falling most sharply in August. Its report showed a net balance reading of -26% in July, but that widened to -39% in August.
In terms of agreed sales, a net balance of -22% was recorded in August, which also indicates that the market continues to soften. This measure was only -13% in July. Rics says sales have now fallen for five straight months, with the latest returns implying that this downward trend is taking root further.
The sales forecast for the next three months has also slipped further into negative territory, while the forecast for the year ahead has now reached an all-time high, with the most pessimistic forecast since Rics began collecting this data. in 2012. A figure of -45% was recorded. for this indicator last month, down from July -35%.
However, despite this market pessimism, the lack of housing supply continues to support house prices. A net +53% of respondents reported an increase in house prices during the month of August. Although this figure is also down from the July report (by +62%), Rics says it remains comfortably above the long-term average of +13%.
On the rental market, tenant demand continues to grow, with a nominal net balance of +50% of contributors noting an increase in tenant demand over the month. At the same time, the latest net owner instruction balance was -13%, with declining supply in the rental market being a recurring theme for most of the past five years. Given this excess of demand over supply, rents should increase in the short term. Over the next twelve months, rents are expected to increase by almost 4% nationally.
Tarrant Parsons, senior economist at Rics, says: “Concerns over the economic backdrop and rising interest rates continue to weigh on market momentum, with the strong activity at the start of the year now giving way to a more subdued picture.”
MT CFO Tomer Aboody adds: “The simple economic equation of supply and demand keeps real estate prices high, with ready buyers always looking to move and take advantage before interest rates rise even further.
“With so much uncertainty over the next 12 to 24 months, the market will start to stabilize, but whether there will be a crash remains to be seen. It would take high sales volumes at lower prices for that to happen. happens, but with inflation on the rise, homeowners who have bought in the last few years will be worried, and hopefully the appointment of Liz Truss results in some quick help to manage the pain.
Jeremy Leaf, former Rics residential chairman and North London estate agent, says: “It is becoming increasingly clear – and not just at the front – that the inventory shortage continues to support prices while masking the impact of the rising cost of living on the rest of the market.
“Another problem is that demand can disappear if it’s not met quickly enough, so prices can go down further.
“Still, we’re not seeing widespread renegotiations or buyer withdrawals, so don’t expect a significant correction just yet, although the market is certainly more price sensitive than it was a few months ago.”