Rightmove has reported that the annual rate of increase in house prices in February was at its lowest level since April 2013 at +2.3%, although overall demand remains strong.
This month sees the price of property coming to market increase by 2.0% (+£5,986), the smallest price rise at this time of year since February 2009. This is well below the average +5.0% February uplift over the previous seven years. This contributes to a further slowing in the pace of price rises, with the annual rate of +2.3% being the lowest since April 2013.
Miles Shipside, Rightmove director, said: “While the prices of goods in shops are rising at a faster rate, the pace of price rises in property coming to the market is slowing. They’re still 2.3% higher than a year ago, but perhaps we’re approaching the territory where many buyers are unable or unwilling to pay what sellers are asking, given the negative combination of rises in the cost of living, tighter lending criteria, and a dose of Brexit uncertainty.
“The housing market has had a long sprint since April 2013 when the annual rate was last below this level, so it’s not surprising that upwards price pressure is running on tired legs with average prices today being 23% or nearly £60,000 higher than they were then. This surge in the cost of home-ownership highlights some of the issues referred to in the government’s recent White Paper on fixing the broken housing market.”
Early 2016 was boosted by frenzied buy-to-let investors rushing to beat the April stamp duty deadline which makes this year look subdued by comparison. However, demand remains strong with visits to Rightmove up 3% compared to January 2016, at new record levels for the first full month of the year. Despite the slower momentum of price increases, the number of properties that estate agents are selling is holding up well in comparison to a year ago. Sales agreed are down by just 3.1% in January, with the bottom rung of the ladder understandably being the drag with a fall of 8.9%. This sector, comprised of properties with two bedrooms or fewer, also saw fewer new listings, down by 10.3% compared to the overall new supply drop of 6.1%.
Shipside said: “With Rightmove recording over 131 million visits in January, some three million higher than a year ago, demand for housing is at an all-time high for this time of year. Home-hunters are busy searching online for the right home at the right price.
“While seller pricing power appears to be on the wane overall, the numbers of deals done is very robust, scarcely lower than during last year’s tax-saving rush, although understandably quieter in the investor sector of two beds or fewer and in parts of London.”
The slower pace of price rises means that over-priced properties are at greater risk of standing out as poorer value for longer, diminishing the interest of potential buyers. If prices are rising quickly then they will catch up with an over-priced property sooner, making it less obvious that it is more expensive than local comparable properties. With buyer affordability increasingly stretched, three quarters of agents (75%) surveyed by Rightmove report their local market as price sensitive and that an asking price more than a few percent too high will harm interest levels in the property. Only one in four agents (25%) said interest was still generated if prices were more than 5% too high. In addition, Rightmove analysis of over 100,000 newly-listed properties shows that sellers are 40% more likely to sell with that agent if the property is priced right when they first come to market.
Shipside added: “The majority of the market is price sensitive with most agents we surveyed reporting that possible buyers are reluctant to enquire about a property just a few percent too high in price. With the annual rate of price increase now at 2.3% a property that is over-priced by more than 5% will have to wait more than two years for the market to catch up with it. Some sellers may have thought there is no price to pay by starting high and reducing the asking price later.
“However, our extensive tracking of properties that have found a buyer shows that your property should substantially out-perform the level of interest in similar properties in your local area during the first three weeks of marketing to minimise the risk of being left on the shelf. Over-pricing loses you that vital initial interest and impetus, and buyers often have reservations about a property that has not sold as quickly as others or has had a price reduction.”
Jeremy Duncombe, director of Legal & General Mortgage Club, said: “The housing market has always experienced monthly fluctuations in the price of property, so today’s results from Rightmove are no real shock, particularly as the annual figures continue to show house prices rising over the course of the year.
“After the fanfare surrounding the Housing White Paper, it is reassuring to see the government finally recognise and make plans to tackle the supply and demand crisis that is the root cause of the housing crisis. With a programme in place to address housing supply, it’s now time to get on with the job of building thousands of new homes, for all tenures, to create a fairer housing market for the future.”