Rents and tenant demand rise – but supply is falling

Homebuyer enquiries fell in August at the steepest rate since the early stages of the pandemic as the cost-of-living crisis impacted house market conditions, a survey reveals.

The Royal Institute of Chartered Surveyors (RICS) Residential Market Survey also reveals that there has been a 50% increase in members seeing a rise in tenant demand over the month.

Alongside this, the latest net balance for landlord instructions came in at -13%, with falling supply across the rental market an ongoing theme over much of the past five years.

RICS says that this excess of demand over supply will see rents rising in the near term.

Over the next 12 months, rents are anticipated to rise by close to 4% at the national level.

‘Rising interest rates continue to take their toll’

Tarrant Parsons, the senior economist at RICS, said: “Concerns over the economic backdrop and rising interest rates continue to take their toll on market momentum, with strong activity early in the year now giving way to a more subdued picture.

“Moreover, given projections for the UK economy point to a potential recession emerging towards the end of 2022, respondents envisage housing sales continuing to slip in the coming months.

“For the time being at least, the lack of stock available on the market is still providing support to house prices, which continue to rise, even if the pace of growth has cooled over recent months.”

RICS also says that house prices continue to rise across the UK, but enquiries, sales and new instructions all dropped at sharper rates than in the previous month.

Fourth consecutive month of negative growth for new buyer enquiries

This is the fourth consecutive month of negative growth for new buyer enquiries and the drop from July was relatively sharp, -39%, down from -26%.  This represents the weakest return for buyer demand since April 2020.

The number of agreed sales fell by 22% in August, representing a further softening from a figure of -13% seen in the previous report.

Sales have now, RICS says, fallen for five consecutive months, with the latest feedback implying this downward trend is becoming ‘entrenched’.

Sales predictions for the next three months also look like falling and, in a year’s time, the sales expectations are the most downbeat since 2012.

Continued lack of homes coming onto the market

Also, the continued lack of homes coming onto the market is illustrated by the new instructions indicator falling to its lowest level this year.

This has pushed average stock levels on estate agents’ books to an all-time low of 34 homes per branch.

However, it is this lack of supply that has been a crucial factor in underpinning growth in house prices.

When questioned, 53% of respondents reported an increase in house prices during August, down from 62% in July, but comfortably above the long-run average of 13%.

There’s also a downbeat forecast for the longer-term as 12-month price expectations have now eased in each of the last six months, from a net balance reading of +78% back in February to a figure of +3% in the latest results.

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