A little over halfway through the year and we are not in the position we expected to be in this time last year. The economy is reeling from three successive quarters of negative growth, mortgage finance remains in short supply and the Eurozone drama continues to weigh heavily on our banking system.
This explains why consumer confidence remains at a low ebb as evidenced by several recent surveys. The appalling weather since May and the distractions of the Queen’s Diamond Jubilee and the Olympic and Paralympic Games have also diverted people’s attention away from the housing market.
We do not anticipate much change in the above backcloth over the remainder of this year, although there are some indications that the autumn period will bring its usual seasonal burst of activity – property portal Zoopla, for example, reported that visits to their website over the first three weeks of August were up 45% on the corresponding period last year.
On balance, we have revised most of our shorter term forecasts downwards since last year. We now believe the 2012 outturn figure for average national prices will be negative (-2.5%) although our 5-year average annual growth projection has been raised from +1.8% to +2.6%. This improvement is based on the assumption that the economy will finally return to growth and that mortgage finance will become more readily available aided initially by the Government’s Funding for Lending scheme.
This, in turn, should release pent-up sales demand from occupiers forced to seek temporary shelter within the rented sector or from owners currently unable to move or biding their time. Evidence of the level of pent-up demand comes from the most recent English Housing Survey which reported that 59% of current renters aspire to buy their own home at some point.
The dynamics driving the London market differ from the national housing picture in that the prime segment, carried by largely recession-proof HNWIs – over half of whom are from overseas – continues to exert a disproportionate influence on overall price growth in the capital. Hence the 2012 London projection has been raised to +3.7% from +0.3% in our last forecast.
Over the period 2013-16, we project that London will continue to outperform other regional markets averaging +5.4% per annum, followed by the South East at 4.3% p.a. London’s performance will be aided considerably by the limited amount of prime stock combined with sustained buyer demand. At the other end of the scale, we believe that the North East will remain the laggard, averaging 3.2% p.a. growth.
Looking further ahead, the Eastern region is projected to experience the fastest regional rate of growth in household numbers up until 2033 – +33.6% compared to the national average of 26.7%. This equates to an average annual increase in new households of 1.3% which compares with an average annual increase in the regional dwelling stock of 0.8% over the past decade and suggests significant potential for longer term price uplift in the region going forward, assuming the rate of housebuilding does not increase substantially – probably a fairly safe asumption.
Our prime London forecast is unsurprisingly more optimistic as the market is driven more by international demand and a shortage of available prime stock. We predict prime prices will rise by an average of 8% per annum between 2013 and 2016. The limited amount of new supply – combined with sustained buyer demand – has already had a considerable impact on price growth. According to the Nationwide New Properties Index, average new build capital values rose by a healthy 48.9% between q1 2009 and q2 2012.
Barring another economic shockwave, we see no reason why the attractions of prime London should diminish and indeed, London’s safe haven status is proven in times of international economic and geo-political distress – a possible exception would be a global meltdown, in which case all bets would be off. Further depreciation of the Euro against Sterling (already around 11% over the past 12 months) could deter Eurozone buyers, however, the tax hikes announced in this year’s budget probably represent the main negative for prospective overseas buyers.