Housing market on mute
RICS released their January 2023 UK Residential Market Survey this morning
What RICS said
House prices continue to slip at a national level
Metrics on buyer enquiries, agreed sales and new instructions remain negative
Forward-looking indicators remain subdued
The January RICS UK Residential Survey makes for interesting reading and sheds some laser-focused light on the balance of housing supply and housing demand.
RICS report a housing market on mute with new buyer demand, new listings, sales and house prices all trending downwards, and that trend is likely to continue as the housing market adjusts to a higher mortgage rates environment.
At first glance this all sounds rather gloomy, but whilst fewer people seem to want to buy and sell, we believe that those that do want to buy and those that do want to sell will be able to find a home and agree on a fair price and should not be deterred by the madness of the crowds.
The balance for new buyer enquiries fell further from -40% to -47% in January, making January the ninth consecutive month of negative readings. Perhaps this should not be a surprise, if house prices are falling today, it might make sense to wait until tomorrow to buy. However, if the home you want and perhaps need to buy is on the market today, why risk losing out by waiting or tomorrow?
New listings are also in short supply, with a negative net balance of -14% as are market appraisals (valuations) posting a negative net balance of -42%
Supply and demand dynamics underpinning house prices
In our view, those commentators talking about significant house price falls fail to consider the interaction between the demand side (home buyers) and the supply side (home sellers).
House prices will fall if there are more sellers than buyers. If there are two similar homes for sale, but only one buyer, lowering the price could secure the sale. However, if there is only one house for sale and only one buyer, the price negotiation is more even-handed.
The bears perhaps view the housing market like the stock market, where if you think prices are going to fall you want to get out quickly before prices fall too far. The shareholders in Blockbuster did just that when Netflix started to build momentum.
The housing market is different, most people who are looking to sell a home are also looking to buy a home. Most sellers are also buyers, and in our view, this interconnectedness shields the housing market from the volatility we often see in the stock market. If now is not a good time to buy, it will also not be a good time to sell.
In times of market stress, the level of housing market activity shrinks focusing on those for whom it is a good time to buy and those for whom it is a good time to sell. If in this smaller market, someone wants to buy your home and you want to sell, a fair price can be agreed upon. Every home is unique, and it is rare to find a buyer who, deep down, won't have a preference between two potential purchases. The key for the home seller is to find the agent who can find the right buyer at the right time for their unique home. Once the buyer has decided they want to buy a particular home the direction of national house prices becomes a sideshow, the focus is now to secure the purchase of the home they want to buy.