Housing market still downbeat in February but indicators now flagging a more stable 2023

RICS Residential Market Survey, February 2023

• House price balance continues to slip at a national level
  
• Rents rise due to continued significant supply and demand imbalance
• Ahead of the UK budget, RICS calls for housing supply boost for homeowners and renters.
• The important need for government support for increasing the energy efficiency of owner-occupier and rented homes remains high as fuel costs continue to hit consumers.

The February 2023 RICS UK Residential Survey continues the trend of being generally downbeat, however there are several indicators demonstrating a more stable picture emerging through the course of 2023.

This reassuring prospect is also evident in some of the anecdotal remarks from survey participants stating how a more optimistic February has given the housing market some hope for the coming months after a sluggish start to the year.

Most significantly, the headline reading for new buyer enquiries rebounded to a net balance of -29% (measured on a seasonally adjusted basis), improving from -45% in January. While this metric is still signalling a decline in demand, and represents the tenth consecutive negative monthly reading for new buyer enquiries, it is also the least negative result since July 2022.

The new sales indicator was also less negative in February, improving from a net balance of -36% to -26%. However, the average time taken to complete sales continues to rise and is now approaching 19 weeks.

In an additional question included in the latest survey, RICS analysed the difference between ask and sales prices in the current macro climate. In the mainstream market (covering prices up to £500k), around 60% of respondents suggested that prices were being agreed at below the ask price. For properties priced between £500k and £1 million, the share jumped to just over 70%.

Moving across to the UK lettings market, tenant demand continues to increase with a net balance of +32% reported. Significantly, landlord instructions continue to decline, although at a lesser pace than in the recent months at -13%. Inevitably, given the ongoing imbalance, the headline rent expectations reading remains at a relatively high level of +45%. Moreover, this pattern is repeated across much of the country.

Tarrant Parsons, Senior Economist, commented:

“The housing market continues to adjust to the tighter lending climate, with stretched mortgage affordability still weighing heavily on activity.

Given the ongoing weakness in demand, house prices remain on a downward trajectory, and are expected to see further falls through the first half of the year at least.

Going forward, near-term expectations suggest market activity will remain generally subdued over the coming months, although the latest survey feedback shows tentative signs that the ongoing decline in buyer enquiries is now moderating”.

Sam Rees, Senior Public Affairs Officer, commented:

“Ahead of the UK budget on 15 March, RICS is emphasising the critical role housing has to the UK economy, and the need to boost supply through new builds and commercial property conversions where appropriate whilst conforming to the strictest standards.

RICS supports efforts to improve the energy efficiency of homes and the continuation of the government’s Energy Price Guarantee. Further fiscal intervention for consumers and businesses is required to scale up the retrofitting of UK homes and we welcome initiatives such as ECO+ that go some way in delivering such needs.

With rising rents and diminishing housing stock in the private rental sector, the government must do more to support landlords who are leaving the market due to increasing cost and regulation challenges.

Landlords continue to raise concerns with RICS on the lack of clarity and financial support from government to meet expensive energy efficiency improvement targets which is further pressuring landlords into exiting the sector.

RICS would also encourage the government to restore the Local Housing Allowance to the 30^th percentile to support those private renters who are struggling with rising rents.”