Dealing with the Elephant in the Housing Market

 

The Federation of Independent Estate Agents has produced its latest edition and it provides data on the current state of the housing market. In this blog, we take a look at the data and analyse what it means to house sales and lettings.

The housing market is now starting to overheat as people have rushed to complete purchases ahead of the end of the Stamp Duty holiday. This has now been extended until June so the bottleneck that this has caused should ease. And with a phased return after June the impact of the end of the Stamp Duty holiday should be manageable.

But the biggest challenge in the housing market right now is the clear evidence that shows that demand is outstripping supply. That’s been caused partly by the Stamp Duty holiday, but Covid safety concerns have led to a reduction in supply. 

And if we don’t see suitable properties coming onto the market soon we will see the inevitable price inflation caused by too few properties being chased by too many people. 


 

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The Headlines

  1. UK Demand for property has outstripped supply in 2021 so far

  2. Demand UP by 17.5% compared to the previous year

  3. Supply DOWN by 20.5% compared to the previous year

  4. There is now more property selling than there is coming onto the market to sell

  5. The market requires a correction


So why is this a problem?

In a world where markets aren’t keen on ‘severe corrections’, a severe correction in the housing market might be needed. The current situation is unsustainable so can’t continue for long before it causes the market to stall.

For example, data from the Federation of Independent Estate Agents shows that there is more property outside London which is Sold Subject to Contract than there is currently property for sale. And some areas of England are running out of properties for sale altogether.


Housing Market Performance: Sales Marketplace

All of 2020, compared to previous year

Demand up by 10%

Supply down by 1.5%

2021 to-date, compared to previous year

Demand up by over 17%

Supply down by 20.5%

Quite simply, demand is outstripping supply, and that is the root cause of the challenge facing the housing market in 2021.


To put this into context we can take a look at the Property Equilibrium Index produced by the Federation of Independent Estate Agents.

This report looks at past performance of the housing market and allows us to draw comparisons to forecast future performance.

Looking back, “normal” tends to be where demand is 73% of supply. To put that into simple terms, for every 100 properties for sale, 73 would get a sale agreed.



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Property Equilibrium Index

Annual Breakdown


 

 

 

 

 

 

 

 

 

 

In this chart, you can see that the housing market was stable in 2018/19 with little happening. In 2016/17 there was a slight seller’s market, increasing in 2020 and then 2021 so far shows a huge increase. This market can lead to price inflation due to lack of demand.

*Chart produced by Federation of Independent Estate Agents


Quarterly Breakdown

 

 

 

 

 

 

 

 

 

 

 

In this chart, set out by quarters, you can see where exactly we began to see this challenge emerge. Normal seasonal influences played a small part, but you can see clearly the change in demand in 2020, which has continued into 2021.

*Chart produced by Federation of Independent Estate Agents


Rental Property Market

Under normal circumstances, you might expect part of the housing market to perform well, but the other not to. So if sales are buoyant, rentals would be low, and vice versa.

Analysis by the  Federation of Independent Estate Agents shows that this is not the case during the pandemic. Under normal circumstances you could expect Let Agreed volumes to be 64% of new instructions. Supply and demand in the rental marketplace have been in equilibrium more or less throughout. In 2021 this has changed, with an increase in demand for rental properties. Property sales remain in much higher demand, but with the exception of London landlords should be pleased with performance in their sector. 


Final Comment 

The Federation of Independent Estate Agents indicates that estate agents anticipate an increase in instructions once the third lockdown ends and the vaccine continues to take hold in the UK. Sellers are likely to be more comfortable with people visiting their homes and are waiting for the right time to list.

A readjustment to the market is needed. A rise in house prices if demand isn’t met seems likely, so an increase in available properties is the best option for the market.

Sellers bringing their homes to market during the coming months can’t come soon enough. 


*Data and graphs produced by the Federation of Independent Estate Agents