Savills Research | The Residential Property Focus May 2009
The mainstream market
Cautious optimism for the mainstream
While the road to recovery is undoubtedly a long one, growing buyer activity
illustrates a significant shift in sentiment, as Yolande Barnes investigates.
I
n marked contrast to 2008, the Despite the very low transaction levels as a proportion of other, basic spending).
mainstream residential market is now reported by RICS in the three months to the The measure has now been restored to
characterised by growing applicant end of March (just 9.7 sales per surveyor), well above the long term average seen in
activity. The Royal Institution of sales to stock ratios rose very slightly the period of sustained house price growth
Chartered Surveyors (RICS) has reported over this time, as the amount of property from 1997 to 2007, meaning households,
an increase in the numbers of people on agents’ books contracted. Many theoretically at least, have more than
looking to buy in every month since discretionary sellers have either withdrawn sufficient income to afford houses at their
November 2008, which indicates an or delayed participation in the market. current value (see graph 1.1).
important turnaround in buyer sentiment. Stock levels are likely to be further Similarly, the cost of owning is now in
While those buying or considering re- reduced by the increased levels of sales line with, or in many cases cheaper than,
entry to the market are restricted to cash seen in March, raising the distinct prospect the cost of renting, even accounting for
buyers and the equity rich, their importance of a shortage of property to buy. some moderate falls in rental values. This is
in sealing the bottom of the market should This is not to say that a full recovery a position not seen since 2002.
not be under-estimated. The resulting is around the corner as there remains Second, those potential buyers who
transactional activity, combined with a significant constraints on demand are prepared to take a medium term view
lack of new stock coming to the market, particularly from the mortgage-dependent are sensing that, while values may not
is likely to provide the basis upon which buyer. It’s more likely that we are in a period have fully reached the bottom, they are
prices will stabilise over the course of the where the worst of house price falls are sufficiently close to warrant buying. Many
coming months. behind us. deals are now being transacted at -20% to
-25% off peak values (less for the best in
The cost of owning is Improved affordability class properties), suggesting that this level
now in line with, or in many
Increased buyer activity has been is now low enough to motivate equity-rich
a function of several factors. First, buyers to return to the residential property
cases cheaper than, the
affordability has vastly improved given market, particularly given the medium-term
both the falls in house prices seen over the prospects for price growth.
cost of renting, even
past 18 months and prevailing low interest
accounting for moderate
rates. Our favoured measure of purchasing Exceptional times
power is surplus household income after In theory, these combined factors should
falls in rental values… the costs of housing finance (expressed drive a strong increase in demand among
Graph 1.1 Graph 1.2
Affordability is restored Economic outlook (GDP growth forecasts)
Nominal HPI (LHS) Real HPI (LHS)
Historic Aug-08
Income (net of housing)/basic spend (RHS) Nov-08 Feb-09
160% 60%
4.00%
140% 40%
3.00%
2.00%
120% 20%
1.00%
100% 0%
0.00%
80% -20%
-1.00%
60% -40%
-2.00%
40% -60%
Q1 71Q1 73Q1 75Q1 77Q1 79Q1 81Q1 83Q1 85Q1 87Q1 89Q1 91Q1 93Q1 95Q1 97Q1 99Q1 01Q1 03Q1 05Q1 07Q1 09 -3.00%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: Savills Source: HM Treasury
06 savills
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