Supply of homes in regional housing markets

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."

• Average asking prices across England and Wales are now at their highest point since July 2008

Headlines from home.co.UK House Price Index
 • Average asking prices across England and Wales are now at their highest point since July 2008
 • A further 0.6% rise in the last month has pushed annual house price inflation to 4.0%, the highest annualised increase since March 2008
 • All areas of the UK recorded price rises in the last month, save for Yorkshire and Scotland • Overall, the number of properties entering the market is only slightly down (-4.4%) on last year
 • The volume of new properties entering the Greater London market was 22% lower last month (vs. June 2012), fuelling an increasingly fierce rate of home price inflation (now at 9.5%)

 Price trend Summary The mix adjusted average asking price for homes in England and Wales is now £241,710, a rise of 4.0% on July 2012. Following steady monthly growth in 2013, average house prices are now at their highest level since July 2008, providing a further boost in vendor confidence. 
The regional picture remains very diverse. London prices continue to soar at more than twice the rate of any other region. Price growth is now being recorded across most areas of the UK, although the Northern regions, Wales and Scotland continue to exhibit the poorest performance.
 The worst performer over the last 12 months is the North West which experienced a price fall of 0.2%. 
The volume of new properties entering the market last month was down 4.4% overall on June 2012, although it should be noted that stock trends do vary considerably across the country. At one end of the scale, new stock in the Midlands, Yorkshire and the North East has risen compared to last year and this will serve to suppress price growth. At the other extreme, annual price rises in Greater London are being driven by a 22% fall in new stock compared to last year.

House Price by region:
Scotland June-13 Average Asking Price £162,012 Monthly % change-0.5% Annual % change 1.0%
North East June-13 Average Asking Price £153,328 Monthly % change 0.3%Annual % change 0.7%
Yorks & The Humber June-13 Average Asking Price £169,421 Monthly % change-0.2% Annual % change 0.4%
North West June-13 Average Asking Price £173,109 Monthly % change 0.1% Annual % change -0.2%
West Midlands June-13 Average Asking Price £194,123 Monthly % change 0.3% Annual % change 3.0%
East Midlands June-13 Average Asking Price £179,569 Monthly % change 0.7% Annual % change 2.4%
East June-13 Average Asking Price £256,292 Monthly % change 0.3% Annual % change 2.6%
Wales June-13 Average Asking Price £175,977 Monthly % change 0.6%Annual % change 1.2%
Greater London June-13 Average Asking Price £386,767 Monthly % change 1.5% Annual % change 9.5%
South East June-13 Average Asking Price £310,031 Monthly % change 0.5% Annual % change 4.5%
South West June-13 Average Asking Price £263,986 Monthly % change 0.5% Annual % change 3.5%
England & Wales June-13 Average Asking Price £241,710 Monthly % change 0.6%Annual % change 4.0%
Source: Home.co.uk, July 2013

UK house prices up as supply falls

Thu, 13 Jun 13

The UK’s supply of property for sale dropped 8 per cent in May 2013 compared to May 2012. 

Combined with rising demand, the low levels of housing stock pushed up asking prices in the UK up by 0.6 per cent in May 2013 to £240,238, 3.6 per cent higher than last year.

Indeed, the mix adjusted average asking price has now grown for 19 months in a row in both England and Wales, with Greater London, the South East and the South West recording the biggest rises of 7.9 per cent, 4.4 per cent and 3.9 per cent respectively.

On the surface, an annual price rise of 3.6% appears to be a reasonably strong performance, although it is important to note that virtually all of this growth has been achieved in 2013 and predominantly in London and the South, explains the report.

Looking at price trends around the country, the recovery is only clearly apparent in the South. Average prices across the northern regions of England are essentially static (slightly negative in the case of the North West) in stark contrast with the South which has recorded monthly increases of 0.8%.

Active buyers are chasing ever fewer properties as supply continues to fall. The volume of new stock on the market has now fallen for six consecutive months and, in May 2013, the number of properties was down 8% on May 2012. In addition, a reduction in the typical marketing time for unsold property (currently 104 days, five days less than June last year) has further reduced the total volume of on-market properties, which is down 14% in the last 12 months.

While average house prices continue to recover, vendors seemingly remain cautious about entering the market in any significant volume. For many, bricks and mortar constitute one of the safest investments in today’s uncertain economic climate. The flow of properties into the sales market continues to fall and this has helped to push the total on-market stock is down by 14% vs. June 2012. As buyer confidence gradually improves in line with mortgage availability and economic growth, this restriction in supply will only intensify the competition for property. This is reflected in falling marketing times in areas of the country where demand is higher, and implies that the current stock is beginning to flow through the market at a faster pace.

“The current trends are clearly showing an overall market shift in favour of vendors,” comments Doug Shephard, Director of Home.co.uk. “Prices continue to recover and restricted supply is encouraging more competition between buyers. However, many potential vendors are still reluctant to sell. Relatively cheap mortgages, strong demand in the rental sector and rising values make property an attractive and secure investment, especially in high demand areas which attract relatively high rents and benefit from appreciating capital values.  Until other investment options (shares, bonds, commodities etc.) can offer a premium over and above the yields available in property, the supply shortage will continue, and perhaps worsen.

“As always, the relative strengths of supply and demand will determine the rate of recovery of each local market. Given the current North-South divide, it is already obvious that the turnaround of each area of the UK will differ considerably. London, at one extreme, appears to be operating as a separate entity, bloated by BoE stimulus money and foreign buyers, seemingly immune to the overall economic conditions affecting the rest of the UK. In contrast, Wales and the North East continue to struggle with subdued price performance and typical marketing times that are over 60% longer than the national average.”