Residential Roundup - 11 August

UK economy shows signs of life.

Positive news on the state of the UK economy has been hard to come by over the last 12 months. The news is still mixed, but second quarter UK GDP figures have exceeded forecasters expectations. The UK economy grew by 0.2% in the three months to June, off a flatline forecast of 0% and up from 0.1% the previous quarter. June was a particularly strong month, recording growth of 0.5%. Growth is being attributed, at least in part, to rising household spending, supported by a tight labour market and stronger but still not inflation busting wage growth. There is still work to do. The UK is the only G7 economy still lagging its pre-pandemic peak, the size of the economy still down -0.2% compared with +0.2% for next place Germany and +6.2% for the US.

For the housing market, uncertainty over the outlook for rates peaked in early July, (it has improved a little since) the results of which can be seen clearly in the latest RICS Residential Survey. The survey, most recently run in the second half of July, measures property professionals’ views on the health of the housing market, reported as a balance of opinion. July saw a negative net balance of -53% of agents reporting prices had fallen in the previous three months, with the majority expecting prices, transactions and new buyer enquiries would be lower over the next three.

But early August has brought some more welcome news. The UK is still lagging the US on inflation, where July CPI was 3.2%. But UK inflation, currently up 7.9% annually, is expected to drop below 7% when the next set of figures are released on 16 August. And despite the Bank of England hiking base rates to 5.25% this month, the prospect of a lower peak means we continue to see banks reduce their fixed rates. Nationwide, HSBC, TSB, and Halifax all announcing they would be cutting rates for the second time in three weeks.

House prices

The Nationwide House Price Index shows UK prices down 4.7% from their August 2022 peak, with average values down 3.8% annually. This is the highest annual fall since 2009. Yet despite this somewhat alarming headline monthly falls remain relatively modest compared with the global financial crisis.

Nationwide figures show values peaked in August 2022, when annual growth hit 10%. As a comparison, looking at the 2007 peak shows prices topping out in October 2007, when values were 9.7% higher than they were a year earlier, so similar annual growth to August 2022. However, almost a year on the change in average values have followed a different path. Back in 2007/08 prices achieved 11 months on from peak were -12.4% lower, compared with -3.8% now. Monthly falls exceeded -1% for eight of the 11 months, compared with two in 2022/23.

Here at JLL we expect a further softening in prices in the coming months, but this trend points to a softer landing than some were forecasting a few months back.

Rental market

There appears to be little let up in tenant demand and rental growth in the lettings market. July figures from Homelet show average rents on new lets nationally rose by 10.3% in the last 12 months. All regions reported a monthly increase in rents, with annual increases ranging from 6.4% in Northern Ireland to 15.8% in Scotland. The JLL Big Six Cities Index, which focusses on changes in rental values for new build flats in cities outside London, shows an average annual increase in rents of 14.3%.

The RICS survey reported a rise in tenant demand in the three months to July. With a seasonally adjusted net balance of +54% of respondents reporting an increase, the highest since early 2022. Landlord instructions fell back again, with the July net balance falling to -30%. This continued imbalance means most agents expect further rental growth in the next three months, with a net balance of +63% expecting rents will rise, the highest seasonally adjusted figure on record.

Stock remains scarce, with JLL analysis of listings data from Rightmove showing 97% of local authorities across England, Scotland and Wales saw fewer new listings this year compared with 2019 (figures were more erratic from 2020 through 2022). 47% of Local Authorities have seen rental listings fall by 30% or more. Regionally rental listings in Q2 2023 fell by between 18% and 40% compared with 2019, with asking rents having risen by more than 28% over the same period.