Property Crumble

UK Property Stocks Mar 2010 source RICS, Property Crumble

UK Property stocks are on the rise as this months graph shows.

Currently, the average stock per surveyor is around 67 and you can see that the last trigger point for a property price crash was in late 2008 when property stocks reached 90 per surveyor.

Therefore, we have a long way to go until a sharp price in UK property prices is triggered – but we should expect further increases in stocks over the next 12 months as the number of new instructions is increasing faster than the number of new buyer enquiries.

The risks between a property crumble, property price stumble or all out property price crash are fairly evenly balanced, with the property crumble the most likely scenario, but all three being realistic possibilities.

Either way, the forecasting commentary from house price economists is turning more and more negative.

Property Stocks per Chartered Surveyor, Feb 2010, RICS. Property Crumble

UK equities were affected by today’s news that not much is happening with UK property – but that bad news may be on the way.

The number of sales completed in February has fallen and the level of stocks remains fairly level.

Following last month’s fall in mortgage lending, this all points to a state of ‘not much happening’  but there is a warning of deterioration.

Using the graph, based on data from RICS, you can see that the number of properties held on a surveyor/ estate agents’ books rose rapidly during the early stages of the credit crunch Aug 07 to Mar 08. Then, once there was too much property, the over supply was steadily reduced to Jun 09, by falling property prices – around 25% from peak to trough.

In March 09, just a few months before property stock levels bottomed out in June 09, the prices falls ceased and once property stocks found a steady equilibrium, so prices rebounded about 8% over the next 7 months.

So, what do we make of this latest data?

The level of stocks has not changed dramatically, but the number of sales has fallen.

Therefore, the pain of the UK property market is falling on the property estate agents and we may expect to see branch closures and mergers unless those units can switch into an active lettings market.

However, RICS also reported that the rate of new instructions is increasing faster than buyer enquiries. The implication is that we will see an increase in stock levels in the next couple of months and then, we’ll see prices weaken to reflect the level of stock increase – as before.

It would appear, therefore, that low interest rates has encouraged sellers to hold onto property stock for longer than they might otherwise have done so, and look to sell in Spring 2010. Now that the better UK weather is fast approaching, we are seeing a large pent up supply begin to arrive in the market.

Therefore, expectations are that UK property prices will fall and that the spring market will serve to increase the supply, not to increase demand.

So, property prices might stagnate over the next couple of months as sellers and agents hold out for hoped for spring demand and higher prices, only to start to soften by the early summer and fall sharply in the autumn.

It is going to be a very tough year to be an estate agent.