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Comment: January 2024

Posted on Thursday, January 11, 2024

Comment: January 2024

Paul Ruocco, Managing Director of Alan Goldin, takes a closer look at local Sales and Rental markets:

We start 2024 having seen encouraging signs that Sales activity is starting to pick up, albeit against a backdrop of weak economic growth. Cost of living pressures and higher interest rates are likely to result in house prices remaining broadly flat or dipping slightly in the year ahead.

Sales agreed are 15% ahead of this time last year and we are seeing more realism from sellers who are prepared to negotiate on price. With a steady return to office working, London homes, which have seen slower price growth over the past five years, are now better value for money.

The recent decision to keep the base rate at 5.25% may well provide some added comfort as we move into 2024 for agents and homeowners alike. Equally, the latest inflation figure of 3.9%, the lowest for two years, may lead to the Bank of England cutting interest rates slightly earlier than expected. This will come as a relief for first time buyers and those on tracker mortgages and could have a positive impact on sales completing.

In terms of the national picture the latest figures from Rightmove show that:

  • Average asking prices are just 3% below last May’s peak, but getting the price right first time remains key to securing a buyer
  • Sales agreed are now 10% below 2019’s more ‘normal’ market level, improving from 15% below at the end of last year
  • The pandemic-driven stock shortage is over, with available properties for sale now just 1% behind 2019 levels

The indicators are interesting but making sense of them is more difficult as they represent the whole of the UK market, so translating this picture locally and perhaps more importantly down to individual property level isn’t easy. It is highly likely that the London market will remain tough and prices quite flat this year.

Meanwhile, as the industry continues to adjust to higher mortgage rates and reduced demand, regional variations are beginning to emerge. Regions with lower average house prices are performing better as buyers in more affordable markets remain more active. Sellers continue to grow restless as demand wanes.

2023 showed a 13% increase in vendors switching agents. Longer time on the market and challenging selling conditions could be factors contributing to this trend, as sellers seek alternative estate agents. Many might say that the period of 'easy sales' is over, so vendors may demand more from their agent in this type of market and therefore are more likely to switch when those expectations aren't met. With vendors reacting to longer selling times and a regional divergence in sales activity, it’s vital for agents to understand local market dynamics.

Whilst we don’t expect any interest rate cuts until September, it is still going to take some time for the sales market to fully recover, we are predicting that sales should start to gain momentum by the summer. With a general election on the horizon, there is still set to be a period of uncertainty, which will affect the level and value of sales, probably well into 2025.

Turning now to the Rental Market, whilst the seasonal downturn in applicants is consistent with previous years, there was little rebalance between supply and demand in the final quarter of 2023, with reports that there were, on average, 15 applicants competing for every available property. Consequently, average rental values across the portfolio that we manage in London ended the year 7% higher, or 13% above their pre-pandemic average.

Whilst the number of available rental properties in London is still insufficient, there are signs this year that the gap is beginning to narrow. We therefore expect rents to continue to grow as the lack of supply and strong demand persists.

However, some relief and stability should come as the natural cycle of the rental market returns, and more housing becomes available due to a slowdown in the sales market caused by ongoing instability in mortgages and interest rates. Aspiring investors are well placed to look to purchase properties being marketed at reasonable values.

A lot will depend on whether landlords who were planning to exit, decide to return their properties to the rental market now that yields have increased. If this does occur in a significant way then the pressure on rents will subside. This is one of the reasons that we are forecasting only a 5% increase in rents this year. Returning landlords coupled with a forecast increase in new build buy-to-lets, are reasons why we are expecting the supply of rental properties to grow in 2024.