RESIDENTIAL MARKET COMMENTARY

Transcription

1 A Cushman & Wakefield Insight Publication RESIDENTIAL MARKET COMMENTARY September 2017

2 Economic Overview ECONOMIC OVERVIEW September s MPC meeting witnessed a clear shift in sentiment amongst members regarding when interest rates should begin their ascent. Although this shift wasn t reflected in voting, the minutes point to a strong possibility of a rate rise being agreed at November s meeting. Even when rates do start to rise, a notable downturn in the housing market remains unlikely due to recent levels of house price inflation and a sustained period of tighter affordability requirements for new mortgages. ECONOMIC INDICATORS* GDP growth (%) Consumer spending (by product/service - %) CPI Inflation (%) Exchange Rate (US$ per ) Exchange Rate (Euro per ) BoE Interest rate (%) BoE interest rate (%) Capital Economics GDP (q-on-q) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q Further cooling in the economy resulted in the Bank of England (BoE) revising down their forecasts for GDP growth in their August Inflation Report. New figures show 1.7% growth for 2017 and 1.6% for 2018, down from 1.9% and 1.7% respectively. CPI inflation showed a sharp upward turn in August, moving from 2.6% to 2.9%, but with many forecasters anticipating a fall back in-line with the BoE s 2% target by the latter part of 2018, it is expected that the current figure represents either the peak, or near peak in the medium-term. Once again, the unemployment rate fell (to 4.3%), taking it to its lowest point for 42 years. However, this has not fed through into wages, where growth remains subdued at a sub-inflation 2.1%, ensuring that in real terms, wages fell again. CPI Inflation & Average Earnings (y-on-y % change) 3.5% 2.5% 1.5% 0.5% May 16 Jun 16 Jul 16 Aug 16 Sep 16 Oct 16 Nov 16 Dec 16 Jan 17 Feb 17 Mar 17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Average Earnings (exc bonuses) CPI Inflation Source: ONS / Oxford Economics 1

3 National Market OVERVIEW Latest data from the UK House Price Index (UK HPI) now places London as the region experiencing the least rapid rate of house price inflation. However, the spread of 7.5%-2.8% from first to last place in this league table is at its smallest range in recent history. 8.0% 7.0% 6.0% 5.0% 4.0% House Price Growth (12 months to July) In the near-term, the combining effects of affordability ceilings being met, alongside an on-going environment of political and economic uncertainty will ensure that double digit rates on house price inflation remain unlikely in the coming years. East Midlands East of England South West West Midlands Region North West Yorkshire North East and The Humber South East London 4.0% Annual Rates of Private Rental Growth 3.5% 2.5% 1.5% 0.5% Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug North East North West Yorkshire and The Humber East Midlands West Midlands East London South East South West In the rental market, aside from the East Midlands & North West, rental growth rates are slowing in all other regions (see above graph). The three regions experiencing the strongest rental growth 12 months ago (South East, East & London) are also those loosing heat the quickest. London leads the way in this regard, with the annual rate of growth dropping 250bps to +1.2%. 3.5% Present Rental Growth Rates Vs. Long-Run Average 2.5% 1.5% 0.5% East Midlands South East South West East West Midlands Yorkshire and The Humber North West London North East Current Annual Rate of Growth 10 Year Average Annual Rate of Growth Despite this cooling in rental market, current rates of growth in all but London and the North East are running above their long-run averages. As is the case with house values, the East Midlands region is currently experiencing the highest levels of demand, with the annual rate of rental growth currently standing at 2.8% (house price growth: 7.5%). Sources: UK HPI / IPHRP 2

4 National Market (cont) TRANSACTIONS Overall UK sales transactions in May are running in-line with post 07/08 market downturn averages. In regional terms, there is a degree of variation to this with transactions in London and the South East continuing to fall, down 24% and 11% (respectively) from their post 07/08 May averages. From a transactional perspective, Northern regions are showing the greatest signs of recovery with May 2017 sales volumes above their recent average in all areas. 18,000 Current Transaction Levels Vs. Pre & Post 2007/2008 Market Downturn 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 East Midlands East of England London North East North West South East South West West Midlands Region Yorkshire and The Humber May 2017 transactions Post-downturn market average Pre-downturn market average NEW HOME CONSTRUCTION Latest data on house building in England shows construction levels growing, with new homes completed in Q up 8% on the preceding quarter and 15% higher than the corresponding period in As one would expect, a vast proportion of this increase comes from private enterprise. When analysing historical data we can clearly see the extent at which the construction of social housing all but ceased in the 1990 s. If the 1970 levels of social building are added to the current privately constructed total, over 274,000 properties would have been built in the last year. This would represent just a 4.5% fall on early 1970 s peak activity. 350, , , , , ,000 50,000 0 Private Enterprise Housing Associations Local Authorities Sources: UK HPI / Department for Communities and Local Government 3

5 Prime London Markets PRIME CENTRAL LONDON (PCL) Capital values in Prime Central London experienced another month of flat-lining, with prices showing no movement at all during September. Average achieved per square foot values now sit 1.7% down on a year previous (Sept 2016). From a transactional perspective things were also fairly flat, with the number of sales recorded in September matching those in August, although this figure was up 8% on the corresponding month a year earlier. Indicator Sales Transactions M-on-M (Aug-Sep) Y-on-Y (Sep-Sep) -2% +8% Capital Values 0.00% -1.70% Average sale discount % +11bps (5.92%) +106bps Rental Prices +0.05% -2.72% A very similar picture emerged in the rental market where prices showed a very minor upward tick for the month, with further shortterm growth probable due to a significant contraction in the asking-to-achieved spread. Average rent discount % -33bps (3.14%) +19bps OUTER PRIME LONDON (OPL) Aside from slight falls in transactional volumes, The Outer Prime London market followed that of Prime Central London with both capital values and rents recording neither significant rises or falls. Indicator Sales Transactions M-on-M (Aug-Sep) Y-on-Y (Sep-Sep) -7% -2% For the first time this year, both the rental and sale asking priceto-sold price discount shrank (albeit by relatively small amounts), indicating that the latter part of this year may witness some minor price rises. With the prospect of any further political or legislative shocks limited in the short-term at least, it is very possible that we have now seen a bottoming-outof capital values in the current cycle. Capital Values -0.17% -2.04% Average sale discount % -6bps (4.79%) +81bps Rental Prices -0.04% -2.37% Average rent discount % -18bps (2.71%) -10bps Cushman & Wakefield Prime London Markets Index (Sept 2016 = ) Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 PCL Cap Values PCL Rents OPL Cap Values OPL Rents Source: Cushman & Wakefield Research / LonRes Area definitions for report: PCL = W1H, W1U, W1G, W1B, W1S, W1C, W1K, W1J, SW1A, SW1Y, SW1P, SW1H, SW1E, SW1W, SW1X, SW7, SW3, W8. OPL = NW3, NW8, W2, W9, W11, W14, SW6, SW10. 4

6 01/12/ /02/ /04/ /06/ /08/ /10/ /12/ /02/ /04/ /06/ /08/ /10/ /12/ /02/ /04/ /06/ /08/ /10/ /12/ /02/ /04/ /06/ /08/ /10/ /12/ /02/ /04/ /06/ /08/ /10/ /12/ /02/ /04/ /06/ /08/ /10/ /12/ /02/ /04/ /06/ /08/ /10/ /12/ /02/ /04/ /06/ /08/ /10/ /12/ /02/ /04/ /06/2017 Mortgage Market OVERVIEW Latest data from UK Finance showed monthly falls in (house purchase) lending for 1 st time buyers, home movers and Buy- To-Let investors in July (-16%, -10% & -3% respectively). These figures still represent an increase on the previous year, with the July 2017 overall total 9% higher than July FOCUS: HELP-TO-BUY EQUITY LOAN With Theresa May s recent announcement that an additional 10bn will be pledged to support the Help To Buy Equity Loan (HTB EL) scheme, we took a high level look at it s impact on both volumes of sales and prices. From a transactional perspective, the 12 month period following the scheme s introduction certainly witnessed a growth in the number of first time buyer mortgages, with a 32% increase during this period. However, to place this into context, the 12 months preceding it s introduction witnessed a 45% increase, suggesting that there was already a rapidly growing number of first time buyers entering the market. This was also a period without a significant first time buyer incentive due to the removal of the stamp duty exemption in March of As indicated below, the current number of first time buyer mortgages being issued is nearing the pre-market downturn monthly average (32,138). 35,000 Pre-market downturn monthly average Number of 1 st Time Buyer Mortgages Issued 30,000 25,000 Start of Stamp duty exemption for 1 st time buyers End of Stamp duty exemption for 1 st time buyers Introduction of Help-To=Buy Equity Loan Scheme 20,000 15,000 10,000 In terms of prices, until recently there appeared to be little evidence of upward pressure as a result of the scheme. However the previous year or so has witnessed the rate of house price inflation of new homes considerably outstrip the second hand market (see below graph). If we are to trust UK HPI data, this would suggest that the scheme does indeed place upward pressure on prices, with average annual rates of house price inflation in the new homes market running at 182bps above the second hand market since the scheme s introduction, against a corresponding figure of -85bps for the same period preceding it s launch. Basis Point Difference Between 12 Month House Price Growth Rates of New Vs. 2 nd Hand Homes (England) 2,000 1,500 1, ,000 Pre HTB EL Post HTB EL Pre HTB EL Ave Post HTB EL Ave Sources: UK HPI / UK Finance 5

7 Author Lee Layton Associate Director Residential - Research lee.layton@cushwake.com Contacts Candice Matthews International Head of Residential candice.matthews@cushwake.com Jonathan Stickells Valuation & Advisory Jonathan.stickells@cushwake.com Mike Bickerton Residential New Homes mike.bickerton@cushwake.com Nick Jacks Valuation & Advisory nick.jacks@cushwake.com Jack Simmons Residential - Investment jack.simmons@cushwake.com Jonathan Godfrey Valuation & Advisory jonathan.godfrey@cushwake.com Fergus Jack Residential - Investment fergus.jack@cushwake.com Andrew Palmer Residential - Land andrew.palmer@cushwake.com Neil Batty Residential Head of International neil.batty@cushwake.com Daniel McDonagh Residential - Land daniel.mcdonagh@cushwake.com 6

8 About Cushman & Wakefield Cushman & Wakefield is a leading global real estate services firm that helps clients transform the way people work, shop, and live. The firm s 43,000 employees in more than 60 countries provide deep local and global insights that create significant value for occupiers and investors around the world. Cushman & Wakefield is among the largest commercial real estate services firms with revenue of $5 billion across core services of agency leasing, asset services, capital markets, facility services (C&W Services), global occupier services, investment & asset management (DTZ Investors), project & development services, tenant representation, and valuation & advisory. To learn more, visit or on Twitter. Disclaimer This report should not be relied upon as a basis for entering into transactions without seeking specific, qualified, professional advise. Whilst facts have been rigorously checked, Cushman & Wakefield can take no responsibility for any damage or loss suffered as a result of any inadvertent inaccuracy within this report. Information contained herein should not, in whole or part, be published, reproduced or referred to without prior approval. Any such reproduction should be credited to Cushman & Wakefield. Cushman & Wakefield April 2017 UK Headquarters 125 Old Broad Street London, EC2N 2BQ Phone: To see a full list of all our publications please go to