Our next global convention at Berkshire Hathaway HomeServices will be held in the great city of Seattle. Home to Amazon, Microsoft, Starbucks, the Space Needle, and a man who was lonely & couldn’t sleep. My thoughts drifted to this great city as I reflected on this quarter. It is often said that the loftier the building, the deeper foundations must be laid, and like the above companies and buildings which set solid foundations in the city, so this quarter I believe represents the foundation stones of the property market for the next two years.
So let’s take a moment and review quarter one of 2024 before discussing potential forecasts for quarter two in both sales and lettings markets.
The purpose of this review/blog post is ideally not to tell you things you already know. Most of the data published in the press and media, while insightful, is naturally slightly behind the curve. They often use metrics such as land registry analysis, which is usually six months behind completions, or analysis from lending providers, which again is often found at the end of a sales process. What I would like to provide you with is data from an earlier point to give you the ‘on the pulse’ analysis of the market and what we are seeing.
You can often predict an increase in available stock and agreed transactions by looking at certain internal metrics. These are what I will try to focus on.
Firstly, let's briefly remind ourselves of the market conditions at the end of the previous quarter. The end of 2023 proved to be challenging for both sales and lettings, with high-interest rates and inflation acting as deterrents for potential buyers. This led to a market where sitting and waiting became a common strategy.
Similarly, on the letting side, we faced strong headwinds, with rental prices hitting a ceiling after 18 months of growth. Increased living costs led tenants to resist paying higher prices, while we found a rise in accidental landlords (vendors not being able to sell looking to rent their home instead) contributing to increased stock levels. This increased supply and lower demand led to a stalling in the market as we came to the year-end.
However, we anticipated a more positive outlook for 2024, expecting improvements in both sales and lettings markets. Now, let's delve into what we've observed this quarter and where we were right in our predictions, or should I keep my crystal ball firmly locked away in future?
Let’s start with the sales market before moving onto Lettings. The sales market in 2023 was challenging, with high-interest rates, and a wait-and-see mindset dissuading many potential buyers. However, quarter one of 2024 has continued to provide clarity regarding the path ahead. There's growing acceptance of the long-term trajectory of interest rates. The trajectory seems to be that we will see a decrease in interest rates, but it will be a slow, shallow line down vs an instant cliff-edge drop. The second pill of acceptance we have all had to take is that the days of uber-low borrowing are likely behind us. With, we imagine, a new normal settling lower than we have now, but definitely higher than before. Finally, we have seen a lack of rabbits pulled from the chancellor's property budget hat. Despite the usual rumour mill, there was no major stamp duty giveaway or reform. Looking ahead to a potential election, there doesn’t (as of yet) seem to be any market-changing policy that may be about to drop. Therefore, with the clouds clearing, this newfound certainty, and sight of the likely road ahead have been prompting more buyers to enter the market. Why wait for what seems like a very likely eventuality to arrive when you can get in ahead of the competition and perhaps find a better home now than wait for everyone to realise the obvious and face larger competition and higher prices?
As we mentioned before, you buy your house, but you rent your mortgage rate! Any savings on waiting for a marginally cheaper 2-year deal could be wiped out by increased capital and overall borrowing with increased competition and in turn higher asking prices being commanded.
As widely reported in January, we observed a surge in buyer demand. In January, we saw a 56% increase in buyer registration. This demand has softened slightly over February and March, but we still have an increase in buyer demand by 14% on 2023 same quarter. However, crucially, while 14% may seem a notable increase, the real difference has been the buying behaviour of those registering with us. The applicants who have entered the market have arrived with their decision-making hat on and are more inclined to make offers this year than last, and in turn, vendors seem more willing to listen to reasonable and fair offers. While applicant demand has increased 14%, we have seen agreed deals increase by 50% on the last quarter. When comparing with the same period last year we have seen agreed transactions increase by 150% on Q1 2023. This stat hopefully illustrates the buyer behaviour narrative I was trying to paint. An increasing amount of buyers are confident in the long-term outlook and certainty to make decisions now to benefit later.
Zooming in we are seeing a significant increase in buyer registration specifically at the core market level. With over 40% of buyers registering looking within in this category. We have seen 27% of buyers in the prime markets, and 3% of new buyer registration in the super prime category.
And those buyers in the market do have some great options available to them with an increase in stock available. Our friends at Lonres Data suggest there are 11% more homes on the market than this time last year. Our internal data also mirrors their assessment. However, given we have seen a 166% increase in people requesting valuations on their property this quarter, I would expect to see a surge in Sales stock coming to the market over Q2. Part driven by seasonal factors – The Spring Sales Swing! And part due to wider factors I mentioned earlier, with a feeling of now is a good time to look to sell with motivated buyers in the market while also spotting a window to upsize and benefit from a potential motivated upward chain!
Looking ahead, we anticipate continued growth in buyer inquiries and property listings, as both vendor and buyer spot the positives that 2024 has to offer. We expect the economic narrative to continue to become more positive, which generally leads to increased buyer and vendor confidence.
Looking at lettings, it's been a positive start to the year. Typically, January sees a surge in demand, followed by a slight softening in February and a return to high registration levels in March. However, this year, as expected, we witnessed a significant improved January vs December, in terms of applicant demand, but unusually an even stronger lift in demand in February and March!
In February alone, applicant demand increased by 20% compared to the previous year, signalling a return of lettings applicants to the market. It certainly feels like the lettings market took an extra month to really get going, but now it has we are seeing some very promising results.
Moreover, the increased availability of competitively priced properties contributed to this demand surge. While that may seem somewhat odd, there is a certain level of availability of stock that is optimum to entice applicants into the market. I once spoke to a well-known hotelier who told me 100% occupancy isn’t great for them, as it means their hotel goes off the radar for booking and it ends up in a reduction in demand. Somewhat similarly, if we face such a shortage of stock available to tenants, the word eventually gets around among tenants that people really shouldn’t move as they have no choice, and they just park things. Once they hear there is again a resupply of stock, it causes those who don’t need but would like to move to re-enter the market. The increase in stock I believe, and stock priced competitively has enticed more demand into the rental sector.
Our internal data indicates a significant uptick in available properties compared to last year, reflecting a more competitive market for landlords. The reasons we reviewed last quarter still continue to fuel this extra supply: higher interest rates, accidental landlords, and new penalties on leaving your home vacant for too long have all led to us having a 25% increase in valuation requests this quarter vs last quarter. When we analyse our overall stock availability for lettings, we see we have double the amount of properties available to let vs the same time in 2023. Meanwhile, we have seen applicant demand, while up overall on Q4 2023, down on Q1 2023.
Wider industry statistics also show an increase in stock – 49% more this year vs the same time last. They also interestingly show a decrease in transactions this year vs the same time last, Lonres reported rental transactions across London down by about 11%, with rental price drops increasing by about 70%. This, as alluded to earlier, shows a market where landlords have recalibrated their prices to meet the increased competition in the market.
Contradictory (and hopefully pleasingly if you read this as one of our clients) our own data reveals an increase in successful rental transactions vs last year. If I may be allowed a brief biased moment, our team works in a very specific part of the market and is well-honed to achieve market-beating results for our clients vs some of our competitors. While it is pleasing, it is not entirely surprising for me given the large amount of work, planning, and preparation that has taken place over the last 12 months.
The robust and in-demand core market (think 1,2, and 3-bedroom homes under £1500 per week) has been the catalyst for these large numbers of transactions. This segment of the market is often represented by working-age corporate professionals who seem to be increasingly returning to London and specifically Prime Central London.
We expect to see a similar pattern on the lettings side to sales – positive trading conditions. While we currently find ourselves in an applicant and stock-rich market, I do expect to see some minor tightening of stock once again. Part due to an increased seasonal spring and summer demand, but also with some accidental landlords deciding to revisit the sales market. We do often find the spring market leads to some homes transitioning from lettings to sale as part of the natural process where some landlords and investors decide to try the market. I would expect rental prices to remain steady with a 12-month increase of between 3-5%.
One final point. The Election! Despite an upcoming election in 2024, which historically might have impacted the market, we foresee minimal disruption, as both major parties offer similar outlooks for the property market. Without getting into the minefield of politics, the real politique differences of the two parties don’t seem as extreme as it may have been in 2019, and any change of government seems to offer some semblance of certainty in the short to mid-term status quo governance for the market.
Matt Staton
Head of Residential
Berkshire Hathaway HomeServices London
