New research from Bloomberg Intelligence (BI) finds that a housing crash may be avoided, evident in several indicators, housebuilders including Barratt, Taylor Wimpey and Persimmon have noted better demand, even as they face a tough 2023.
The research, part of BI’s Monthly Housing Pulse, also finds that the hot rental market has driven strong first-time buyer demand, despite squeezed affordability.
Tiny Asking-Price Discounts Flag Resilience, And Realism
Iwona Hovenko, a real estate analyst at Bloomberg Intelligence, commented:
“The very narrow discounts of house prices agreed upon purchase to those listed could imply a robust and resilient UK housing market, which might suggest a crash can be avoided in the absence of negative shocks. Small price concessions vs. asking prices may be further reinforced by the limited stock of homes for sale, sellers’ strong finances, as well as realism by both vendors and buyers, which enable the transactions to occur.”
Sellers achieved 98.8% of their asking price in March, though that was less than the 101% a year earlier, it was better than any March prior to 2021. Moreover, homes listed and sold in March this year reached 99.9% of the asking price compared with 99% in the same month of 2019.
House-Price Stabilization May Be Near But Rate Rises Threaten
Signs of mortgage rates picking up as sticky inflation and robust wage growth fuel market bets for more Bank of England rate hikes threaten a continued housing market recovery.
Hovenko continued:
“While worse than a year ago, housing activity has been better than expected after the dire 4Q22. Buyer sentiment has been improving as lenders offered rates near or even below 4% on some of their most-attractive five-year fixed-rate deals.
“Yet mortgage rates creeping up again may dampen the mood. Still, house-price resilience – as various indices point to prices falling by only 1-5% from the 2022 peak – is encouraging, with Rightmove’s asking-price index almost back to its October high. Even the Nationwide index – highlighting the steepest decline vs. other data – rose 0.5% in April, trimming the drop from August’s peak to 4-5%.“
High Rate or High Rent? First-Time Buyers Go Small to Buy
Fast-rising rents in the UK rental market may be fuelling first-time buyers’ (FTB) motivation to buy homes, despite high-interest rates. This is even as such buyers are hardest hit by lower affordability due to higher living costs and rates, with property portals Rightmove and Zoopla, realtors Hamptons and lender Halifax all pointing out unexpected FTB demand resilience. In order to overcome their now-smaller budgets, FTBs increasingly opt to buy a smaller property or extend the length of their mortgage, in line with results of Bloomberg Intelligence’s buyer survey carried out in October.
London rents surged 17% annually in April to £2,200, while those outside the capital rose 8% and exceeded £1,000 for the first time, according to realtors Hamptons, with data from Rightmove and HomeLet pointing to similar outcomes.
First-Time Buyers May Be Turning to Cheaper Existing Homes
The UK’s squeezed first-time buyers (FTBs) are increasingly turning to cheaper existing housing – especially given the end of the Help-to-Buy incentive for newbuilds that can command a 15-20% price premium – which may dent homebuilders’ sales.
Hovenko added:
“UK first-time buyers have been heavily hit by lenders’ tougher affordability checks, shrinking budgets amid high mortgage rates, still-elevated house prices (despite some evidence of falling prices), as well as falling disposable incomes and rising rents.
“Barratt, Persimmon and Taylor Wimpey all noted a drop in the number of sales to FTBs, despite their solid interest, contrasting several reports from Rightmove and Zoopla pointing to FTBs, surprisingly, being the most resilient of all buyer groups, driven by a hot rental market that has enabled rents to surge.“
