Chichester Property News: housing market

Showing posts with label housing market. Show all posts

Thursday, 19 December 2024

UK property is cheaper than twenty years ago

You may think I’m mad writing the title “UK property is cheaper than twenty years ago” if you’ve even the most basic grasp of the UK’s housing market. On the face of it, you’d be right too. The average property in the UK twenty years ago cost £153,482, compared to £266,640 today.

One of the continuing words on many newsreaders’ lips throughout 2024 though has been ‘inflation’, which may give you a little clue as to where I’m heading with this…

You see, Nationwide Building Society produces some fascinating house price data. Amongst them are the ‘UK house prices adjusted for inflation’ figures, in which Nationwide use the Office for National Statistics Retail Price Index (RPI) to convert the actual house prices into an inflation adjusted one. Doing so paints quite a different story for the UK’s housing market over the past two decades.

For example, as mentioned earlier, a typical property twenty years ago (Q3 2004) would, on average, have cost £153,482 at the time. To buy the amount of ‘retail goods’ today that you could have bought then for that figure would now cost you £319,064 though i.e. more than the average UK home now costs (£266,640 as of Q3 2024). That is to say that overall inflation, measured via RPI, has increased more than UK house prices in the past twenty years.

In theory then, property in the UK should feel ‘cheaper’ than twenty years ago (despite actually increasing by 74% in price). So why is it that not many people feel like that?

I believe that largely comes down to incomes not keeping pace with property prices. This is evident when looking at median annual incomes: £21,996 in 2004 vs £36,712 today (+67%). Add in a greater level of taxation and our net pay is even further adrift when it comes to housing ‘affordability’.

That is, however, in contrast to the minimum wage, which has outpaced house prices over the past twenty years. Consider that the minimum wage was £4.85ph at the end of 2004 and is now £11.44ph. That’s a 136% increase vs the 74% increase in house prices over the same period. And the minimum wage is set to increase by another 6.7% next April…do you think property prices will increase by 6.7% next year? If not, they should in theory become more ‘affordable’ for lower income households.

You’ll note the chart below shows the inflation adjusted house prices as having fallen quite sharpish these past couple of years. That is because actual house prices have dropped a fraction in that time (from a peak of £273,135 in Q3 2022), whilst inflation in the same period has raced up by 13%. But with inflation having steadied this year (it is currently at 2.6% in the year to November) things are starting to level out.

As around 100,000 households a month continue to come off their (super cheap) fixed mortgage rates, it may be that interest rates hold the key here. Indeed, if inflation is truly under control, all economic indicators suggest interest rates will drop and a new wave of house price inflation could yet commence, which would bring them more in line with their longer-term ‘above inflation’ trend.

Thursday, 21 December 2023

UK property is cheaper than twenty years ago

One of the buzz words of 2023 though seems to have been ‘inflation’, which may give you a little clue as to where I’m heading with this…

For example, as mentioned earlier, a typical property twenty years ago (Q3 2003) would, on average, have cost £129,761 at the time. To buy the amount of ‘retail goods’ today that you could have bought then for that figure would now cost you £268,641 though i.e. more than the average UK home now costs (£260,181 as of Q3 2023). That is to say that overall inflation, measured via RPI, has increased more than UK house prices in the past twenty years.

In theory then, property in the UK should feel ‘cheaper’ than twenty years ago (despite actually doubling in price). So why is it that not many people feel like that?

I believe that largely comes down to incomes not keeping pace with property prices. This is evident when looking at median annual incomes: £21,124 in 2003 vs £34,963 today (+66%). Add in a greater level of taxation and our net pay is even further adrift when it comes to housing ‘affordability’.

That is, however, in contrast to the minimum wage, which has outpaced house prices over the past twenty years. Consider that the minimum wage was £4.50ph at the end of 2003 and is now £10.42ph. That’s a 132% increase vs the 100% increase in house prices over the same period. And the minimum wage is set to increase by another 9.8% next April…do you think property prices will increase by 9.8% next year? No? In which case, they should in theory become more affordable.

You’ll note the chart below shows the inflation adjusted house prices as having fallen quite sharpish these past 18 months. That is because actual house prices have dropped a fraction in that time, whilst inflation in the same period has raced up by 17%. But with inflation having dropped to 3.9% in the year to November (and is close to zero over the past six months), change may be afoot.

As around 100,000 households a month continue to come off their (super cheap) fixed mortgage rates, it may be that interest rates hold the key here. Indeed, if inflation is truly brought under control, all economic indicators suggest interest rates will drop and a new wave of house price inflation could yet commence, which would bring them more in line with their longer-term ‘above inflation’ trend.

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Friday, 6 November 2020

How will lockdown 2.0 affect the housing market?

England has entered another lockdown as a result of the Covid-19 pandemic. The restrictions may be less severe than back in March when the first national lockdown was announced, but nevertheless it will have many serious knock-on effects for a large number of people, which in turn is sure to impact the housing market.

During the first lockdown, some estate & letting agents were known to have furloughed all their staff, unplugged their phones and become completely uncontactable! Most agents however (myself included) were even busier than normal, creating solutions so as to best serve their customers and continue to provide a service.

Ultimately people still wanted to move home - particularly those moving for critical work positions or who would be made homeless, having already sold or given notice on their current property! I was still able to accommodate such people during lockdown as the majority of the lettings process is completed online and via the telephone anyway. My normal move-in process however, where I guide the tenants around their new home and show them how things work, was replaced by me videoing myself doing this instead.

The use of video has of course been one of the few winners this year. In the property world, this has meant the ability to do virtual viewings as well as pre-recorded video tours. These are commonplace amongst agents now (with varying levels of quality and success) and have become a great way for people to minimise their physical contact and travel, whilst being able to provide a good overview of any particular property.

The housing market is one of the industries allowed to remain open during this second lockdown though, so there won’t be such a dependence on these methods this time round. Nevertheless, for everyone’s safety, convenience and to help fight the spread, it seems foolish to simply abandon these technologies, which I believe are now likely to become a permanent pre-cursor to ‘in-person’ viewings.

Similarly, I shan’t be undertaking my standard tenancy check-ups during this second lockdown, even though the less-restrictive guidance suggests I could (unlike during the first lockdown). They’ll either be postponed until lockdown ends or conducted via telephone, which worked well previously, especially for those tenants I’ve seen several times and note their home to always be beautifully looked after.

Maintenance works can continue as normal this time around though, whereas the first lockdown restricted such call-outs to emergencies only. Simply carrying on because it’s allowed in the rules though, as opposed to actively reducing people’s travel and contact during the second lockdown, becomes a fine balancing act between serving customers, maintaining tradespeople’s livelihoods and keeping people safe.

There is likely to be an overall slowdown to the economy regardless of whether that’s through enforcement or sentiment though. Indeed, one thing that is likely to repeat itself during this lockdown is my need as a letting agent to acquaint myself with the variety of (ever-changing) financial support schemes on offer. Much of my time in March and April was spent helping my tenants navigate the choppy waters and, ultimately, to help them pay their rent so as to support my landlords through the difficulties too. The government has again extended the furlough scheme (of which 1.7 million people were a part of in October), as well as the self-employed income support scheme. In addition to these emergency schemes, there were 2.4 million people who sought Universal Credit for the first time in the two months after the first lockdown started!

The period between the two lockdowns was noticeably busy for the housing market. Predictions of property prices dropping were quickly quashed as the market was propelled by a variety of reasons for people wanting to move, along with a further reduction in interest rates and the stamp duty savings on offer for purchases completed by 31st March 2021. This has led to property prices across the UK standing 2.5% higher than a year ago.

From a rental point of view supply has been low, yet demand has been strong. The majority of properties I brought to market in the past few months were ‘let agreed’ within 48 hours, with houses especially quick to get snapped up. Some of this demand has come from tenants whose landlords have decided to sell, which is increasingly the case due to rising taxation and legislation. Plus, some landlords have been scared off or had their fingers burnt during the pandemic, which afforded many more protections to tenants, such as extended notice periods and a ban on evictions.

The sales market may be facing a perfect storm next Spring though, as this supply/demand imbalance is likely to reverse. Many more landlords will finally get their properties back from non-paying tenants after the prolonged notice period and court backlog, whereby they will simply cut their losses and exit the market. This could coincide with both the stamp duty relief and Help to Buy schemes ending, putting a sudden stop to many transactions. If this occurs at the same time as the furlough and self-employment support schemes end, unemployment will surely rise, meaning disposable incomes and affordability will decrease.

Of course, the politicians will be aware of this, which is why there’s already suggestions that an extension or further tinkering to some of these schemes is probable for the medium-term. As the days get shorter and the focus turns to Christmas, the property market typically slows down during the best of years. Lockdown 2.0 is likely to add fuel to that and without further government support to the economy there doesn’t seem too many reasons as to why the property market will start 2021 any stronger than it is likely to finish the annus horribilis that has been 2020.