Having already recently highlighted the fact that demand for property in 2021 continues to race ahead of supply on a national basis, this week, we turn our attention to looking at property stock currently on the market for sale.
Specifically, we will look at the volume of property stock that was available for sale at the start of this month and suggest that if demand continues as it did in February 2021, how many months of stock are left “on the shelf” for buyers to choose from right now.
In some areas of the country, we are approaching if not already at dangerously low levels of property stock to choose from and although more supply will certainly be added over the coming months, it is a big problem for the whole of the industry and anyone that relies on it.
To explain this a little further, let’s consider a retail analogy.
The Retail Analogy
A customer walks into their local grocery retailer looking for their favourite brand of soft drink, but they find out that it is currently out of stock.
What do they do next?
The customer, perhaps feeling a little frustrated, considers their options:
- Choose another brand
- Choose another store
- Choose to postpone the purchase, or
- Choose not to buy the drink at all
In this analogy, the point we are making of course is that none of these scenarios represent a favourable outcome for the retailer of the customer’s favourite beverage.
Any retailer will tell you that sales and brand image are all damaged as a result of out-of-stock situations and that retailers should do everything in their power to avoid the dreaded stockout by any means necessary and take a proactive approach where possible.
Now okay, this is a very simple example, but is the property market any different?
Relating to Estate Agents
A customer can’t find a property they want to buy due to a lack of available stock matching their needs and wants, so what do they do next?
- Select a different property, and compromise
- Select a different estate agent, but they will have the same problem as it is industry wide and almost all agents now use at least two of the big three portals
- Choose to postpone the purchase of a property until a time in the future
- Choose not to buy the property at all and stay and improve their current property
Now arguably bullet point one is still a win for the agent, but only in the short-term as this displaces another buyer. So, our view then is the same as it was in retail in that none of these scenarios represent a favourable outcome for the estate agent.
Let’s look at some analysis;
Months of Property Stock Left
We calculated the volume of property stock that was available for sale at the start of this month. We then took away from this property that frankly never sells to remove “old” stock that is only speculatively on the market. Finally, we suggested that if demand continues as it did in February 2021, how many months of stock are left “on the shelf” for buyers to choose from right now.
At a regional level, the situation looks like this;
The South West has the lowest level of available stock at just 2.2 months and the whole of England and Wales (with the exception of London) has just between 2.2 and 2.4 months of stock left.
This means that available stock numbers in months are down by around 50% on historical “norms”.
Actually, you might be thinking at this stage that 2.2 months of stock is quite a lot, but the problem is this is at the level of a region. If we go down to the next level, which is Postcode Area, Wigan (WN) is top of the list with only 1.7 months of stock left. And if we go a step further down to the Postcode District, NR5 in Norwich is top of the list with only 1.1 months of stock left to sell. In fact, there are 530 districts in the UK with stock level of less than 2 months.
If you are looking for a property in Norwich, you are not looking for just any property for sale, you are looking for the right number of bedrooms and the right type and style and in the right price range. By the time you have finished, there are weeks if not days of stock left in some areas of the country.
To illustrate this, we have created the following map where the darker green areas are where stock is running out:
Basically, unless you want to live in part of London, Aberdeenshire, or the Outer Hebrides (not that there is anything wrong with this of course) you have a problem where you are walking into the supermarket and finding the shelves are not fully stocked and, in some cases, practically empty.
At this stage, if you are thinking like me, you will be saying to yourself we are not going to run out of property to sell as Estate Agents will continue to bring in new instructions onto the market for sale. The problem is that whilst we know that supply of property will rise in the coming months, so will demand.
In fact, the problem is getting worse right now. If you exclude London, so far this month we have seen nearly 102,000 sales agreed and only 99,500 new instructions for sale.
So sadly, we have already run out of stock (or are close enough to it to make a big difference to how buyers act) in many parts of the country. There are ominous signs here that there will be significant house price inflation as too much demand chases a decreasing supply of quality homes at a time when the government policy is to extend home ownership.
Months of Property Stock Left – London View
In the above chart, we observed that Inner London has 3.8 months of stock left and Outer London has 2.9 months. To illustrate this, we have drilled down on our UK map into London (with the same legend):
It is our view that unless Estate Agents can get a significant amount of property to come to the market soon, many people will put off a home move because they simply do not have the right choices of places to move in to.
A proactive approach to this problem is needed through targeting the properties that are currently not yet on the market but have a much higher propensity to come to market than others. Notwithstanding the fact that we reiterate that these client briefings are not intended as sales communications, TwentyEA’s Likely to Instruct Off Market model correctly predicted over a 12 month period nearly 80% of instructions that have subsequently come to market*.