Is housing demand still outstripping supply?

publication date: Jul 15, 2014
author/source: Kate Faulkner, Property Expert and Author of Which? Property Books
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 Supply and demand for housing in the UK July 2014

When trying to understand property price trends the most important thing to know is how many people there are buying versus selling. Prices fall when two sellers are chasing the same buyer and highest prices are achieved when two or more chase the same property. 

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Kate Faulkner comments on Demand for Property: 

“It is vital that property market comments reflect the reality of what’s happening rather than ‘chase headlines’. The reports on demand all suggest that it’s pent up demand which has caused the rises over the last 18 months, and comparing a rising market in Q1 2014 versus a flat one in Q1 2013 has temporarily exaggerated the rise in prices year on year, and as we compare property prices for the second half of 2014 versus a rising market in 2013, price rises from reports show a narrowing of the gap.”

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Summary of what the reports say about demand for property:
Rightmove “The summer months traditionally see a drop-off in buyers, and this year it seems that the initial rush of pent-up buyer demand has started to slowdown, as many motivated and committed buyers have now completed their transactions. (June 14)”
NAEA “The average number of house hunters registering with NAEA agents fell back from the year high in April (392) down to an average 374 house hunters in May, however, sales were unaffected. The average number of homes sold per member agent increased from an average of nine homes (April) to 10 (May) matching the year high reached in March 2014. The important first time buyer market experienced a decline with the proportion of first time buyers purchasing a home in May shrinking to 25%, down from 28% in April. (May 2014)”
Hometrack “There was no growth in new housing demand in June which marks a major turnaround from the trend over last 18 months. (June 14)”
RICS “Increased speculation regarding the timing and pace of interest rate rises, alongside heightened rhetoric from the Bank of England regarding the risks, is resulting in more buyer caution. New buyer enquiries stand at their lowest level since the beginning of 2013. The London market appears to have been particularly affected by the increased air of caution with buyer demand contracting for the second consecutive month in June. Sales were reported to be increasing or broadly stable in all areas but the London market. (June 14)”
Nationwide Mounting expectations that interest rates may rise earlier than previously anticipated may also act to dampen housing market activity in the months ahead. As investors have become more confident that the Bank Rate will start to rise gradually from late 2014 or early 2015, so longer term interest rates have started to increase. If sustained, it is likely to feed through to mortgage rates, which would help to prevent buyer demand rising too strongly. (June 14)”
Halifax “Housing demand continues to be supported by an economic recovery that is gathering pace, with employment levels growing and rising consumer confidence, although real earnings growth remains sluggish. (June 14)" 
Bank of England “The number of loan approvals for house purchase was 61,707 in May, compared to the average of 69,320 over the previous six months. (May 14)”
Severn Trent “The average number of daily transactions for June was up 11.2% on the same month last year. It was also up 2.2% on the average number of daily transactions in May. (June 14)”

Acadata “With new affordability regulations and stress tests tightening mortgage approvals, the Help to Buy scheme remains a crucial link in bolstering first-time buyer demand and fuelling activity outside of London. Flats, the typical property type of first-time buyers have seen the biggest boost in sales. (June 14)"
Land Registry “In the months December 2013 to March 2014, sales volumes averaged 67,969 transactions per month. This is an increase from the same period a year earlier, when sales volumes averaged 50,016 per month. (May 14)”

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Kate Faulkner comments on Supply of Property: 
“The future of the property market as we head towards an election has to move away from the importance of ‘location, location, location’ and be all about ‘supply, supply, supply’. Every MP now needs to appreciate the important impact property and the market has on our national and local economy. By the Autumn, I’d like to see every MP having a policy of how they are going to eradicate the disgracefully high council waiting lists and provide the homes people need now and in the future, at a price people can afford.”

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What the indices are saying about the supply of property in June 2014:
Rightmove “Better selling conditions in the first half of this year and increased confidence to take on the commitment of moving have finally unlocked more supply with new seller numbers up by an average of 9.6% year-to-date compared with 2013. All regions have also recorded a month-on-month increase in properties coming to market, with the capital seeing the largest jump in new sellers, up by 23.2%. (June 14)" “The country’s for sale stock is down 15% on May 2013. Moreover, the supply of new market entrants across the UK is down 4% and this is exacerbating the supply demand imbalance. It is of note that London has shown an uptick in supply over the last month. (June 14)”
NAEA “The average number of properties available per NAEA member branch decreased from 45 in April to 44 in May. This time last year (May 2013) members were reporting 60 properties available per branch. (May 14)”
Hometrack “Talk of interest rate rises in the near future has compounded the impact on sentiment and buyers expectations over the market outlook. The net result is that buyers are becoming more cautious, all this at a time when tougher affordability checks have been implemented as part of the Mortgage Market Review (MMR). (June 14)”
RICS “Significantly, the lack of supply that has been exerting upward pressure on prices across the country is beginning to show some signs of easing, with the headline new instructions balance edging into positive territory at +3, the first increase this year. A much more mixed supply picture is now emerging across the country, with London seeing new instructions grow markedly this month, while in the East Midlands and East Anglia, supply continued to contract quite substantially. (June 14)”

Nationwide “It is important to note that the Financial Policy Committee does not have the tools to address the fundamental problem in the housing market – the lack of supply. While there are encouraging signs that the pace of construction has picked up, the pace of house building is still well below the expected pace of household formation. (June 14)”

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