"Reality seems to have ‘kicked in’ over the past few weeks, not so much due to the likely election result but lingering doubts about the strength of the economy and the pace in the expected drop in mortgage rates."
- Jeremy Leaf, north London estate agent and former RICS residential chairman
The housing market saw a "slight setback" in May, according to the latest RICS Residential Survey, with most of its tracked indicators deteriorating.
New buyer enquiries saw a modest dip alongside a general softening in momentum reported across the sales market, while the national house price indicator slipped back into slightly negative territory.
RICS says this appears to be linked to the recent scaling back in expectations around the degree of monetary policy loosening likely to be pushed through by the Bank of England during the second half this year.
Nevertheless, respondents still foresee a modest recovery in residential sales volumes getting back on track over the months ahead.
For aggregate new buyer enquiries series, the latest net balance reading of -8% is down from a figure of -1% in April, consistent with a modest drop-off in demand over the month. Furtheremore, the latest figure marks the softest reading for this metric since November of last year. When viewed at the regional level, the most noticeable decline in buyer enquiries came in the South East and South West of England.
At the same time, respondents also reported a fall in the number of sales agreed during May, evidenced by a net balance reading of -13% being recorded for this month (down from +4% last time). Going forward, despite the recent stumble, near-term expectations point to sales volumes picking up modestly over the coming three months (posting a net balance of +6% compared to zero previously). Moreover, the outlook for twelve months ahead remains relatively upbeat, with a net balance of +43% of survey participants anticipating an uplift in sales activity (an increase from +33% in April).
Alongside this, the flow of sales instructions coming onto the market continues to rise, with the new listings indicator registering a net balance of +16% in May. As a result, the volume of fresh instructions coming onto agents books has now improved for six consecutive months. Painting a similarly positive picture for changes in supply on the second hand market, a net balance of +17% of respondents report that the number of market appraisals undertaken of late is higher than a year ago (representing the fifth positive reading for this metric).
Looking at the most recent trend in house prices, the headline series retreated in May, posting a net balance of -17% compared to -7% in the previous iteration of the survey. Consequently, having held broadly steady in both March and April, the latest reading (being the most negative return since January) suggests that house prices fell slightly during the month. That said, while prices pulled back to a certain degree in virtually all regions of England during the latest survey period, Scotland and Northern Ireland continue to see a very different picture, with prices remaining on an upward trajectory in both cases.
With respect to the near-term outlook for prices at the national level, expectations suggest that some further downward pressure could be seen in the coming three-months, albeit the net balance of -12% is only very marginally negative. At a slightly longer timeframe however, contributors remain firmly of the view that house prices will move higher over the next twelve months. In fact, the latest net balance of +41% for the year-ahead price expectations indicator is the most elevated reading since April 2022.
Jeremy Leaf, north London estate agent and former RICS residential chairman, said: “On sales, we saw very little pause in the recent increase of market activity at the time of, and immediately after, the election announcement. Our buyers and sellers were telling us they regarded the outcome as a foregone conclusion and saw little difference in the two main parties’ housing policies.
“However, reality seems to have ‘kicked in’ over the past few weeks, not so much due to the likely election result but lingering doubts about the strength of the economy and the pace in the expected drop in mortgage rates.
“Buyers are broadly in control so prices are dropping a little and transactions lengthening but keenly-priced homes are still attracting most attention."
