National market back on track as transactions build but don’t boom

The national housing market is ‘showing signs of strengthening’ says CBRE, as transaction levels maintain 2013’s strength (last year saw 1.1 million deals go through; the highest number since 2007) in 2014’s Q1. While such performance is ‘unusual at this stage’ of an economic cycle, it’s too soon to be talking bubbles, although the agency does warn of a two tier economy if the market’s recovery doesn’t ‘broaden its geographic reach’.

CBRE’s transaction data backs up today’s Council of Mortgage Lenders numbers, which show a strong pick-up in year-on-year lending (despite a Q-on-Q fall); read all about that here.

‘While unusually strong for this stage of the recovery, prices are not yet the product of a credit fuelled speculative boom.’ – CBRE

cbre market strengtheneingLooking at the long-term picture, however, it’s pretty clear that transaction levels are not booming. Stock is – as we know – rather short and buyers are still feeling various economic pinches. ‘House sales remain well below the long term average,’ says CBRE, ‘which reflects continued constraints for many buyers. Importantly, there remains a lack of homes for sale and it is this demand/supply imbalance which is pushing up prices. While unusually strong for this stage of the recovery, prices are not yet the product of a credit fuelled speculative boom.’

Looking at the regions outside of London, the Outer Metropolitan area was the strongest performing, with an annual price growth of 10.6%. The North of England also showed a marked improvement and signs of recovery, with a quarterly house price growth of 3.1%.

Jennet Siebrits, Head of Residential Research at CBRE: ‘The number of transactions remains well below the long term average, which reflects the continued constraints for many of today’s buyers. The lack of stock currently on the market continues to create an imbalance between supply and demand, which in turn has increased house prices right across the country.

‘The recent announcement by the Treasury that the Help-to-Buy equity loan scheme will be extended to 2020, coupled with the commitment shown to build up to 15,000 new homes at Ebbsfleet is welcomed by CBRE as a step in the right direction.

‘Despite the improving housing market, it is premature to talk about a housing market bubble; although we recognise the housing market outside of London remains fragile. While the recovery at a national level appears to be building momentum with quarterly house prices improving and regional land markets remaining buoyant, it is of the utmost importance that the recovery broadens its geographical reach in order to prevent a two tier economy.’

Jasper Masters, Senior Director at CBRE: ‘Regional residential land values increased by over 20% last year, and with improving economic outlook, the strong demand and lack of supply for well-located sites, and the roll out of the government’s Help to Buy for another four years, there is every reason to think that this upwards trend in values will continue throughout 2014.’

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  • Here’s CBRE’s regional breakdown:

London

Driven by the continuation of house price increases, and developers content with lower margins, land prices are continuing to rise.

For those developers with a proven track record, many of the banks are increasingly prepared to offer funding solutions. Fundamentally, demand is still strongly outstripping supply in all Boroughs’ particularly where accessibility to public transport is good. This is without the Help-to-Buy Equity Scheme (HTB1) having much impact on the market, with only 7% of the 16,465 HTB1 sales in London.

South East

The Greater London and South East land market is very strong with interest for all sites (both Green and Brownfield) with or without planning.

The ripple out effect from Central London is increasing interest in land, and office buildings for conversion, from London Zone 3 and out into the wider Home Counties. In the Home Counties planners seem to be more open to the potential of residential development on sites; Councils are feeling the pressure to increase delivery of new homes.

With increased activity housebuilders, including Bellway, Redrow and Bovis, have opened up New Thames Valley regions, in order to capitalise on the HTB fuelled, buoyant market. However, there is ultimately a shortage of land available to satisfy the market appetite, which is pushing activity to previously less desirable locations.

South Central

Demand for land remains strong, but purchasers are becoming increasingly selective as their land banks get replenished.

Like other areas across the South, housebuilders are increasing their number of outlets and sub-dividing regions, such as, Bellway Thames Valley, alongside Redrow and Countryside now actively pushing into Hampshire.

Land supply is improving as a consequence of some successful “smash & grab” opportunities being consented due to known land supply deficits. The planning system across most local authorities is now beginning to deliver because of its past failure to provide a robust 5+ year housing land supply.

South West

The market has seen continued improvement both in terms of pricing, and the availability of residential land, a result of significant increases in consented sites coming through the planning system. This is in direct relation to most local authorities being pragmatic about recent changes to the planning system and driving consents through where policy compliant.

There continues to be limited demand from housebuilders for city center apartment schemes and reluctance to progress office to residential conversions via permitted development, a market which is seeing growing demand from property companies and institutional investors. However, regional yields are still creating a barrier to entry.

Midlands

2013 trends have continued into 2014 with very strong demand for prime and secondary addresses. However, tertiary is still largely off limits, as there is enough supply in secondary areas. Scale remains important for the volume builders with 3 years supply (150 to 200 units over 3 years) being the sweet spot. There is now an increasing appetite for city centre PRS opportunities and smaller scale private residential schemes, but volume housebuilders are still cautious on projected revenues.

The land market is not without its challenges, like most regions, developers are seeing increased material and labour costs and shortages of both. In addition, the Greenbelt is the next big pressure point, especially on the edge of Birmingham

North

Activity, and land value, continues to increase dramatically, largely a result of HTB1, where some sites are up to 80% dependent. All developers are now hunting for land, with requirements expanding to secondary and tertiary locations. However, slightly more land is coming forward through NPPF five year supply appeals.

The north is one region where PRS activity is strong, with great interest from institutional funds in Liverpool and Manchester

Scotland

The land market is improving as there is an under supply of new housing particularly in Edinburgh and Aberdeen, with the Glasgow market beginning to show signs of recovery also. As a response the plc housebuilders are now seeking more outlets and a greater sales volume to expand their businesses, with Barratt and Persimmon seeking to increase to in excess of 1,000 completions in Scotland per annum.

However, there is generally a lack of new build private activity on the larger brownfield city centre sites, although planning applications are now being progressed for some of the more intensive projects that have been missing for the last 5 years. The next 12 months is likely to see larger capital investment into private flatted schemes due to the increased confidence and requirement for the plc’s to secure and build more units across a wider range of product as their turnover targets increase.

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