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29th Jan 2019 RICS UK Residential Market Survey: December 2018

Near term sentiment continues to deteriorate

The December 2018 Royal Institution of Chartered Surveyors’ (RICS) UK Residential Market Survey results show the year ending on a weak note, with key activity indicators continuing to slip at the headline level. Political uncertainty is increasingly being cited as a constraint on the market, alongside the well-established challenges around affordability and a lack of stock available for purchase.

• Enquiries, agreed sales, and new instructions all soften again over the month
• Sales expectations point to a further decline in near term activity
• Headline price net balance slips slightly deeper into negative territory

At the headline level, new buyer enquiries reportedly fell for a fifth month in succession, with the net balance coming in at -17% (compared to -20% in November). This decline in demand was again matched by a deterioration in the flow of fresh listings coming onto the market, as the survey’s indicator on new instructions remained in negative territory for the sixth report in a row. Looking back further, new instructions to sell have now declined in 19 of the previous 24 months.

Given this, it is little surprise that stock levels on estate agents books remain close to record lows, currently standing at an average of just 42 properties per branch. Meanwhile, the proportion of respondents seeing a decline in the number of appraisals undertaken over the month continues to heavily outweigh those reporting a rise (when compared to the equivalent period a year ago), with the net balance coming in at -36%. As such, the pipeline for sales instructions going forward still appears to be worsening.

On the back of these subdued trends, national sales volumes also continued to dwindle according the latest results, although the net balance did at least turn slightly less negative (-11% compared to -15%). Looking beneath the headline averages reveals that some areas saw a more positive trend, as sales picked up modestly (on a seasonally adjusted basis) in East Anglia, Wales, the North East and Northern Ireland over the month.

That said, near term sales expectations are now either flat or negative across all parts of the UK, with the headline net balance of -28% representing the poorest reading since the series was formed in 1999. However, sentiment towards the twelve month outlook is not so downbeat, with the year-ahead expectations series actually turning positive for the first time since May. This could be suggesting that a lot of the near term pessimism is heavily linked to the lack of clarity around what form of departure the UK will take from the EU in March. Either way, sales trends are expected to improve across much of the UK over the coming twelve months, led by the strongest sales growth projections from respondents across the North West, the West Midlands and the South West.

In terms of prices, the headline indicator slipped slightly deeper into negative territory during December, falling to -19% from a net balance of -11% last time. This marks the fourth consecutive negative reading and is also the weakest since August 2012. Nevertheless, the UK wide measure is still masking significant variation at the regional level. Indeed, prices continue to soften in London and the South East, while respondents in East Anglia, the South West and the North East also report negative trends (albeit more modest in comparison). By way of contrast, all other areas continue to see prices rise, led by solid growth in Northern Ireland, the North West of England, as well as Scotland.

Looking ahead, while downward momentum in prices at the national level is expected to persist over the near term, the twelve month outlook remains broadly flat. Furthermore, with the exception of London and the South East, prices are anticipated to either rise or hold steady, right across the board.

In the lettings market, demand from tenants held more or less steady (on a non-seasonally adjusted basis) for the third month running. Alongside this, landlord instructions declined once again, rounding off a year in which they have fallen in all twelve months. Rental expectations remain modestly positive for the coming three months, with respondents pencilling in roughly 2% rental growth at the national level for 2019.

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