Yesterday, one of the phrases that was most popular was the one that said, ”It’s time to stop the pretence – the US is in recession.” Today, it is tempting to say something similar about the UK housing market. You know, of course, that property market bulls will somehow find reason to talk up prices, but the latest piece of news from the Royal Institution of Chartered Surveyors (RICS) really does seem to be dire. Is it curtains for the UK property market?
You will recall we have always been fond of the RICS index. Every month it asks surveyors if prices are up or down in their region. It takes the percentage number who say up, subtracts the percentage number who say down, and the balance forms the RICS headline index. It also asks a number of other key questions, which together form the monthly RICS survey.
The headline index is down again – this time to -64.1. It’s been lower than that before – but only just. The all-time low recorded by RICS for this index was -64.5, seen in June 1990. And we all know what happened to house prices in 1990 and the following year.
The RICS index has now been in negative territory for 7 months, actually it suffered 15 months of negative scores between the summer of 2004 and autumn 2005 – and yet the housing market slowdown proved something of a trivial breeze, with house price falls revealed by the likes of Nationwide, Halifax and Hometrack never proving to be significant. So, it could be argued it is too early to tell what the ramifications are for the recent slide in the RICS index.
But there are a number of crucial differences. For one thing, of course, is the severity of the fall in the RICS index. But look at little deeper at its report, and then woe seems even worse.
But first, squint, and view the data from a certain angle, and you can detect some good news. The RICS index for expected prices did actually rise slightly from last month – but then again only by a smidgen, and last month this index fell to its all-time low.
More significantly, sales expectations turned positive for the first time since last June, so surveyors expect sales to rise.
What matters though is whether sales are greater than the number of new properties coming on the market. This brings us to the really damning piece of news.
The stock of unsold property on surveyors’ books jumped by 8.5 per cent on the month, and by 48.6 per cent on the year, the highest annual growth rate since December 1989. Average stocks on surveyors’ books were 92.0 in February (the highest since October 1998), compared to 84.7 in January.
Even more tellingly, the ratio of completed sales (over the last three months) compared to stock of unsold property on the market fell to 26.5 per cent in February, from 28.7 per cent in January. Market conditions are now the loosest since September 1996, and the sales to stock ratio is more than 10 percentage points below the survey’s long-run average.
Actually, we do find this a tad confusing. Because last week, the Halifax suggested that stock to sales ratios in the UK were actually quite good – especially in comparison to the US, where the stock of existing homes is now sufficient to meet 10.3 months of demand. It seems to us that a ratio of 26.5 percent for properties sold over the last three months, to total stock – is actually not dissimilar to the US stock levels – in fact it is the equivalent of over 11 months of supply, so we are not sure where that optimism came from.
Bear in mind that while the figures announced by RICS yesterday seem bad, the credit crunch has not really hit home yet. There are still over 1 million people to come off fixed rate mortgages this year, and the effect of the recent changes in the size of deposits required by lenders will not have shown up in the figures yet.
For some time we have felt 2009 will be the nasty year for the UK – so watch the unfolding story of the RICS index. It will be a telling tale.
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