To fully understand the nature of the UK property market, it is important to recognise that there are significant variations in supply dynamics across mainland UK.
In fact, it should come as no surprise that the balance of supply and demand for property in each region is fundamentally correlated with price performance.
Although the regional disparities in price recovery have been widely reported, regional supply dynamics, whilst equally important, have not garnered sufficient attention.
The current volume of vendors entering the market (around 100,000 per month across the UK) is less than half of what it was during the property boom year of 2007. It may be argued that restricted supply of property for sale has been instrumental in both preventing a greater crash and facilitating a much more rapid recovery. The same thesis applies at a regional level.
The consequences of low supply and high demand are all too apparent in the overheating London property market, where supply is down 19% and prices are up 10.5% (year-on-year).
Contrastingly, the North East is the real contrarian in the country's supply crisis. In this region, the supply of new and resale property has actually risen by 16% over the last 12 months while pricing is essentially stagnant (+0.5% but falling in real terms).
Clearly, in the current market, homeowners in areas where prices are growing at a reasonable rate are reluctant to sell. Concerns about the lack of suitable properties are discouraging many would-be vendors. Another considerable influence is the strong rental market.
As sales prices continue to rise, property owners are choosing to bide their time and enjoy the high rental yields and income generated from a strong lettings market, hence the growing number of 'double renters'.
Even in London, where the average property price has risen 10.5% in the last 12 months, the strong rental market can offer landlords an average monthly rent of £2,369 for a flat and £3,636 for a house.
On the other hand, we are also witnessing increases in the number of vendors in the poorly performing northern regions. This is an alarming trend for areas such as the North East and the North West where price growth is already negligible.
Increasing supply looks set to keep prices in such regions in check, at least for the rest of the year. Hence, in contrast to the South, the North remains, for the time being, a buyer's market.
Doug Shephard, director at Home.co.uk, commented:
"These regional supply dynamics suggest that the bipolar nature of the UK property market is only going to get worse. Starved of new and resale stock, pricing in the London and South East property markets looks set to go ballistic.
"Prices in the capital are already increasing too fast and further restrictions in supply can only serve to make matters worse. Meanwhile, increases in supply in the sluggish northern markets can only exacerbate their problems of slow sales and price stagnation."
