Weakening demand has not deterred a more positive market sentiment in the months ahead despite latest figures suggesting a fall in new buyer enquiries of 8% in May and 7% in June according to The Royal Institute of Chartered Surveyors (RICS). Current market dynamics according to the UK Residential Market Survey for June 2024 suggest a similar fall in agreed new sales -7% in June, marginally less negative than -13% in May; with new instructions down for the first time in 6 months.
Despite the figures, double the number of respondents indicated they anticipate higher property transaction volumes in the coming months, with the sentiment at its highest since January 2022. The results suggests external factors continue to have an impact on the market with the General Election often cited as a period of uncertainty which affects the property market. The new Labour government have made positive commitments to housing in recent days since the election with the reintroduction of home building targets by Chancellor Rachel Reeves to the tune of 1.5 million homes over the next five years, a figure not hit since the 1960s.
But the wait for interest rate reductions, despite the rate of inflation falling to the Bank of England’s target of 2%, continues to frustrate home movers. And in a speech at King’s College London with the Economic Statistics Centre of Excellence (ESCoE) Monetary Policy Committee member Jonathan Haskel warned against interest rate reductions citing inflation in wage growth as a driver of what he considers to be a temporary return of inflation to the target 2%, saying
“there are considerable encouraging signs, most notably from normalising inflation expectations and a (spoiler: temporary) return of headline inflation to target in May 2024.”
adding
“The playing out of (wage inflation) through the economy, and the continued tight and impaired labour market, means that inflation will remain above target for quite some time. I would rather hold rates until there is more certainty that underlying inflationary pressures have subsided sustainably.”
Respondents reported increasing stock on their books, at a level not seen since 2021, but a downward spike in the number of appraisals being undertaken, a hangover of the election. RICS also report house price sentiment remains on the decrease; in line with the Halifax House Price Index which suggests house prices were largely flat in June, down by just -0.2% on a monthly basis, with an annual rate of house price growth +1.6%.
Tarrant Parsons, RICS Senior Economist, said:
“Although activity across the housing market remained subdued last month, forward looking aspects did improve slightly. There are some factors emerging now that could support a recovery in the months ahead. If the Bank of England does decide that the current inflation backdrop is benign enough to start loosening monetary policy next month, this may prompt a further softening in lending rates. In addition, the recent election delivered a clear outcome, with housing pushed up the political agenda.”
