The UK economic future looks uncertain right now with inflation hitting a 30-year high, principally stimulated by energy, fuel, and food price rises.
Normally, when the UK economy is bad, there is a direct impact on the housing market which effectively means fewer people moving home. If there is one thing that property buyers and sellers don’t like it is uncertainty. After all, how confident would you be to make the largest purchase of your life right now?
One look at the GfK Consumer Confidence Index for May 2022 shows that consumer confidence is at its lowest level since the global financial crisis.
So, in theory, this means the property market will be suffering right now, right? Well, read on to find out more…
There will be a lot of talk about supply, demand, and prices in this edition, so as a reminder we define these as follows:
- Supply – homeowners instructing an estate agent to sell their property
- Demand – estate agents getting a sale agreed on a property
- Prices – the asking price for the property – which is what a property originally goes up for sale for
Now that’s all out of the way we can look at supply and demand.
The following chart looks at supply and demand volumes for the first five months of the years 2018 to 2022:
The reason I’ve drawn this as a line chart is so that you can see the gap between supply and demand more clearly. In the “normal” pre-COVID years about 70% of houses that were instructed for sale went on to get a sale agreed on them. In 2021, this figure peaked at 96%, which was clearly unsustainable, and in 2022 to date, it has fallen back to 87%.
The second thing you can see on the chart is that both supply and demand have fallen in 2022 compared with the first five months of 2021.
- Supply in 2022 is down 5% on 2021
- Demand in 2022 is down 16% on 2021
This leads us to think that after both the busiest and yet strangest period in living memory for the housing market that demand is now finally falling, and things are getting back to normal.
There is however a major problem with this thinking, where again under normal circumstances, when demand falls, so do prices – right?
A look at the following chart shows what has been happening with average asking prices since 2018:
May 2022 saw average asking prices rise by 3% in the month since April 2022 and a whopping 11% on May 2021.
So, if demand is down, why are prices not falling?
Well, first we looked at regions of the UK. Whilst there are some differences, there is nothing significant to report on because there is another more powerful overriding factor – which is prices!
The following table shows the variance in demand during the first five months of 2022 compared like for like with 2021, but this time cut by price band:
We have already concluded that demand overall is down by 16%, but the above table tells you where the falls in demand are coming from.
It clearly shows that the volume of sales being agreed on property worth less than £200k has fallen year on year by 25%. And the next bracket – £201k to £350k is not that much different, falling by 18%.
But the big question is why?
To understand this, we have to look at the relationship between demand and supply by price band and year:
Going back to the “normal” year of 2019, of all the sub £200k properties listed, 84% of them sold. Last year, the figure was 106% – in other words, we are selling more than what we are getting in stock, so stock runs dry.
In the first part of 2022, we are seeing demand for sub £200k properties match supply – so everything is selling.
We, therefore, have a situation where the supply slack that existed has been used up and everything that comes onto the market at lower prices is selling.
As such, even though the volume of sales agreed is falling, there is no issue with demand at all – it probably remains stronger than ever. In fact, the important measure is not how much demand is falling but how much of the supply is being sold – and that’s 100% right now!
The major issue, therefore, is with supply because you can’t buy what’s not on the shelves. And prices will undoubtedly continue to rise even though the economy may well be heading for a recession.
For everyone who relies on home movers for their businesses, this will make them even more important than they already are, because they will be the only people with the spending power to buy your products.