The largest proportion of global wealth is held in the residential property market, and it’s been outperforming almost every other asset class.

Any budding investor weighing up their options may consider putting their money into bonds, funds, stocks, gold or even cryptocurrency, among other things, but it is the real estate market that not only has the highest level of investment globally, but has soared in value in the past three years.

The latest research published by Savills shows that the world’s property market was worth a huge £379.7trn as of the end of 2022, with more than three quarters of this to be found in residential property specifically. The sector alone was worth £287.6trn globally by the end of last year.

Further to this, the residential property sector saw a huge 21.1% leap in its value in the three-year period between 2019 and 2022, faring well through various factors that created market turbulence elsewhere, such as the Covid pandemic.

The only asset class to perform more strongly during the three-year time period was gold, which saw its value grow by 26.9%. However, as Savills points out: “The total value of gold is still dwarfed by the value of the real estate markets worldwide.”

Outperforming bonds and equities

Residential property across the globe “significantly” outperformed both bonds and equities over the last three years. Over the past year, the global value of equities has fallen by 20.3%, followed by agricultural land by 11.4% and debt securities by 3.2%.

Across the whole of the real estate sector – including both commercial and residential property – there has been an 18.7% hike in value over the past three years. Commercial real estate was slower to climb, though, with a 14.4% rise in value.

The most valuable real estate market, says Savills, remains China, as it makes up more than a quarter (26%) of the world’s total real estate value. Of course, it is also one of the most highly populated countries in the world, with 1.4 billion people and a vast amount of land space.

The US was the country with the second highest value real estate market, accounting for 19% of the total; but again, it is a large and highly populated country. After this, Japan came in third position, followed by Germany and then the UK.

Savills explains the balance: “Significant real estate wealth is concentrated in Europe and North America. The value of property in these two regions accounts for almost half (47%) of the total value worldwide, despite them being home to just 17% of the global population.

“Asia-Pacific (excluding China), by contrast, has 37% of the world’s population but accounts for only 17% of global real estate value.”

UK residential property hit £8.68trn in 2022

As of the end of 2022, Savills estimates that the total value of UK residential property was a record-high £8.68trn, having grown by 5.1% since the previous year. This comes off the back of accelerated house price growth over the past three years.

Lucian Cook, head of research at Savills, said: “The total value of all housing has risen by almost a quarter (+23%) since 2019, while outstanding mortgage debt went up by a lower +11%. So, while outstanding borrowing increased by £168bn, the growth in the total equity pot was well over nine times that figure at £1.46trn.”

The residential property market in the UK remains an extremely popular asset class among investors. It has continued to perform strongly throughout the past few years, in spite of some major shifts within the economy, and appetite remains strong despite rising mortgage rates.

Estate agency Hamptons recently released a forecast indicating that the market will return to growth from 2025, in what it deems to be the start of a new “property market cycle”, so the total value of UK residential property looks set to continue to climb.

Source : BuyAssociation

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Average house prices in the UK will fall by 1% next year as competition increases among sellers, Britain’s biggest property website has forecast.

Sellers were likely to have to price more competitively to secure a buyer in 2024, while mortgage rates would settle down though “remain elevated”, said Rightmove.

A year ago, Rightmove predicted that average asking prices would fall by 2% in 2023. On Monday, the company said the average was 1.3% lower than in 2022 as the property market continued to contend with significantly higher mortgage costs and a cost of living crisis that refused to go away.

The website records asking prices rather than the actual one properties are sold for. It said it was predicting that these would typically be 1% lower nationally by the end of 2024. The market was continuing its transition to “more normal levels” of activity after the busy post-pandemic period, it added.

Rightmove said the number of sellers who had had to cut their asking price during 2023 had risen to 39%, compared with 29% last year and 34% in 2019.

Tim Bannister, a property expert at Righmove, said: “An average drop of 1% in prices reflects our prediction that it’s likely to be another muted, and in parts challenging, year for some buyers and sellers in 2024.” But he added: “The better-than-anticipated activity this year has shown that many buyers are still getting on with satisfying their housing needs, and there is considerable opportunity for sellers and their agents to attract these buyers with the right pricing.”

On Friday, Nationwide building society surprised some observers when it announced that prices were up 0.2% month on month in November, after a 0.9% increase in October and a 0.1% rise in September. However, it said that on a year-on-year basis, prices were down 2% in November.

Last week, the property website Zoopla said market conditions were the best for buyers since 2018, when Brexit uncertainty hung over the market.

There was better news for people having to remortgage next year. The mortgage broker John Charcol predicted on Friday that the rates on some new fixed-mortgage deals could dip below 4% by mid-2024.

Rightmove said average mortgage rates had now fallen steadily since July, “providing movers with much more stability and certainty over the type and cost of mortgage offer they are likely to receive”.

But while the outlook for mortgage rates had improved, with many commentators believing interest rates may have peaked, the property website said: “Affordability remains stretched for many buyers.”

As the Bank of England signals that any cuts to its base rate are not imminent and that borrowing costs are likely to remain elevated during 2024, “some buyers’ spending power will remain limited”. said Rightmove.

Source : TheGuardian

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A key player in the housing market has said it expects asking prices to track around 1% lower nationally by the end of next year, as the market continues to normalise after post-Covid freneticism.

Sellers will likely have to price more competitively to secure a buyer next year and agents will have to work harder especially when it comes to first-time buyers as affordability remains stretched, according to Rightmove (RMV.L).

“The housing market is made up of thousands of local markets, each with their own unique dynamic of supply and demand,” said Rightmove’s property expert Tim Bannister. “In areas with more discretionary sellers and fewer homes for sale, we may see new seller asking prices remain flat, or even very slightly increase compared to this year.”

The platform thinks mortgage rates will become more predictable — but remain high, meaning middle-market and lower end buyers will struggle. The average two-year fixed rate is now 5.52% and average five-year rate is 5.11%.

The real estate platform used a predictive model to forecast, based on millions of supply and demand pricing data, as well as a panel of experts.

A year ago, it predicted average new seller asking prices would drop by 2% in 2023, and they are currently 1.3% lower year-on-year.

Looking back at this year, the average time for a seller to find a buyer has jumped from 45 days to 66 days. Meanwhile, some monthly price falls have been greater than the usual seasonal trends this year.

The level of price reductions has increased during 2023, with 39% of properties now seeing a price reduction during marketing compared to 29% last year, and 34% in 2019. New sellers will need to compete with their cut-price neighbours, and work with their agent to start their marketing with a competitive price, rather than starting too high and needing to reduce later.

Research shows that pricing right at the outset maximises the initial impact among local buyers and gives new sellers a much greater likelihood of a successful sale.

Buyers are much more likely to see a choice of homes for sale in their area that suits their needs compared to the stock-starved pandemic years, Rightmove said. Buyers coming to market in 2024 are in a strong position to negotiate on price and take more time to choose the home that’s right for them.

However, the number of available homes for sale has only just increased to pre-pandemic levels and there are no signs of a wave of new listings which would create a glut of homes for sale. With more choice and fewer buyers on the ground, it will be those sellers who are willing and able to price temptingly who will attract buyer’s attention.

Meanwhile, UK house prices rose in November in the third consecutive monthly increase as the market now expects interest rates to start coming down. The average cost of a home rose 0.2% in November from the month earlier to £258,557, Nationwide Building Society said on Friday. From a year ago, prices fell 2%, which was the strongest reading in nine months.

Earlier last week Zoopla published its house price index for November showing houses were being sold at steep discount. In London properties are selling for £25,000 less than the asking prices, while in the rest of the country sellers were lowering prices by £18,000.

Source : YahooFinance

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In recent years, property prices have largely followed a consistent upward trajectory; however the last 12 months have been anything but smooth sailing for the housing market. A combination of factors from rising interest rates, falling property prices, and shaky public confidence have been a perfect storm for the property market that looks to have no sign of ending just yet.

A perfect storm for the housing market

Buoyed by the prospect of falling prices, many wannabe homeowners hoped the predictions of a property crash would finally allow those priced out of the market to get a foot on the property ladder; however, as yet, this hasn’t materialised.

This is because the value of any falls in purchase price have been tempered by the increased cost of borrowing; average falls in sold property prices in 2023 are reported to be around 4%, but with the soaring cost of borrowing, the reality is that buying a property with a mortgage has actually become a more expensive prospect for many. If interest rates are to remain at their current levels, the only way affordability can be improved is if earnings rise or property prices take a meaningful fall.

The problem of uncertainty

An uncertain marketplace creates an environment of low consumer confidence. A property purchase is likely to be among the most significant buying decisions an individual will ever make, therefore, before taking this step, they understandably want to be as sure as possible that they are making a sound investment with their hard-earned money. First time buyers, particularly those with low deposits, are at particular risk of falling into negative equity should they purchase at the start of a sustained period of declining prices. This is making potential buyers much more cautious and therefore much more keen on securing a discount on the listed price.

Goodbye 2023, hello 2024

As we approach the end of 2023, it appears that buyers and sellers have reached an impasse. While buyers are wanting a discount on their purchase to cushion the squeeze on affordability and mitigate the risk of negative equity, sellers are so far reluctant to take a hit on the price they want to achieve.

So what does this mean as we look into 2024? Well, should this stalemate continue, this has the potential to create a property supply shortage as wannabe sellers hold firm. While some property sales are a necessity, such as in the event of death, divorce, or redundancy; many property transactions are optional, fuelled by a want – rather than a need – to trade up or down.

So while those that need to sell may be required to adjust their expectations as a consequence of weakening buyer power, those who do not have to move may well make the decision to stay put and ride out any impending storm.

Adjusting to a changing marketplace

While a stagnant property market is a possibility in 2024, the alternative is that buyers and sellers alike may find they adjust to the ‘new normal’ over the course of the year; for purchasers the new normal means higher interest rates, whereas for sellers the new normal is a reduction in the price that they can command for their property. With revised expectations on both sides, this may be enough to kickstart the housing market once more.

A cooling market or a crash?

It is important to make the distinction between a cooling in property prices and a wholesale property crash. Many experts are predicting house prices will experience a drop in 2024, however, estimates for the scale of this drop are relatively conservative. It is perfectly possible for house prices to fall without the property market suffering a catastrophic crash in the process; for many, this appears to be the most likely scenario as we look forward into 2024.

The housing market does not exist in a vacuum; property prices rising or falling is often something which happens in tandem with something else, be that changes to interest rates, unemployment levels, availability, and population levels. With demand for property ever-changing, and the short-term economic outlook so uncertain, forecasting the future of the property market – something which until recently was easy to predict – is now becoming an increasingly impossible task.

Source : Today’sConveyancer

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UK house prices suffered their first annual decline in more than a decade in September as rental costs rose at a record pace, according to official data.

The average price for a property decreased by 0.1 per cent in September compared with the same month last year, down from a 0.8 per cent expansion in August, figures from the Office for National Statistics showed on Wednesday. This marked the first year-on-year drop since April 2012.

The fall reflects the effect of high mortgage rates on the market as the Bank of England keeps interest rates high in an attempt to weaken demand and lower inflation to its 2 per cent target.

The contraction was “primarily due to the effects of monetary policy tightening on mortgage rates and economic activity more broadly”, said Jake Finney, economist at the consultancy PwC UK.

“While we do not anticipate any [interest] rate rises soon, the impact has not fully been felt yet by homeowners,” he added.

Private rental prices rose by 6.1 per cent year-on-year in October, up from 5.7 per cent in September, the ONS reported, marking the fastest rate since the data series began in January 2016.

High borrowing costs have weakened demand for new homes as more households struggle to afford mortgage payments. At the same time, appetite for rental properties has risen pushing up rents.

Rising rental costs also reflect landlords passing on higher borrowing costs to tenants and a shortage of rental stock.

Karen Noye, mortgage expert at the wealth management company Quilter, said that interest rates “will stay higher for longer causing the slump in buyer demand to be prolonged”.

The sharp fall in inflation to 4.6 per cent has boosted expectations that the BoE will trim interest rates from June 2024. The market expects rates to remain at a 15-year high of 5.25 per cent until then.

The ONS house price index refers to deals finalised in September that may have been agreed several months before. It has a longer time lag than data sets from mortgage providers such as Halifax and Nationwide.

Unlike the other indices, the ONS includes cash purchases, providing a more comprehensive measure of house prices.

Gabriella Dickens, economist at Pantheon Macroeconomics, said the ONS house price index would come down in 2024 “with the nadir coming early next year”.

House prices decreased by an annual rate of 2.7 per cent in Wales and 0.5 per cent in England, but rose in Scotland in September, according to the ONS. London reported a 1.1 per cent fall year-on-year driven by contractions in cash and detached house purchases.

London registered the fastest rental price growth in England at 6.8 per cent, setting a new record since the data series began in January 2006.

Anna Clare Harper, chief executive of sustainable investment adviser GreenResi, said: “The only way to reverse the trend of rising rents is for policy to encourage more and better supply, and for professional investors to step into the void that is emerging, as traditional private landlords exit in droves.”

Source : FinancialTimes

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LONDON, Dec 6 (Reuters) – UK investors pulled money from real estate funds for the second month running in November, but sentiment towards equity and fixed-income funds improved, fund network Calastone said on Wednesday.

Investors withdrew 88 million pounds ($110.70 million) from real estate funds overall last month, making it the second-worst month of the year for property funds after August’s 121 million-pound net outflow, according to Calastone’s data.

The property outflows were driven by a decrease in buy orders, while sell orders remained almost unchanged, Calastone said.

Property faces a “triple squeeze” of weak tenant demand in commercial property, high interest rates hitting capital values, and high finance costs hurting profit margins, said Edward Glyn, head of global markets at Calastone.

Real estate firms around the world have come under strain as higher interest rates have driven up the cost of funding.

The Bank of England raised interest rates 14 times in a row between December 2021 and August this year. It paused its increases in September.

Jefferies analysts said in September that London’s office market was in a “rental recession” as empty workspace hit a 30-year high.

“Until we see a decisive turn in the UK’s growth prospects, commercial property is likely to continue to struggle,” Glyn said.

UK investors showed more confidence in equity funds, which posted net inflows of 449 million pounds in November, Calastone said. This was a tentative turnaround in the wake of 4.5 billion pounds of overall outflows between May and October, Calastone said.

There were still outflows in ESG equity funds, which lost a net 524 million pounds in November. But fixed-income posted “modest” net inflows for the first time in four months, gaining 256 million pounds overall, Calastone said, attributing the change to a decline in bond yields.

Source : Reuters

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UK house prices rose for the second month in a row in November, according to a leading index, as a slight easing in mortgage rates helped coax more buyers into the market.

The average price of a UK property rose by £1,394 – or 0.5% – last month to £283,615, according to the mortgage lender Halifax.

It signals an uptick in activity across the housing market, where price growth has stalled over the past year because of an increase in interest rates and subsequent affordability pressures that have driven away otherwise eager buyers.

UK house prices have also been underpinned by a shortage of available properties over the past year, as many sellers wait for the market to normalise and prices to recover.

On an annual basis, prices are down 1%, although Halifax said this was a “relatively modest” drop given the economic headwinds that have weighed on consumers over the past 12 months. Average house prices are still £40,000 above pre-pandemic levels, having been skewed during the Covid crisis, when people scrambled to buy larger homes.

“Recent figures for mortgage approvals suggest a slight uptick in activity levels, which is likely as a result of an improving picture on affordability for homebuyers,” Kim Kinnaird, the director of Halifax Mortgages, said. “With mortgage rates starting to ease slightly, this may be leading to increased buyer confidence, seeing people more inclined to push ahead with their home purchases.”

However, Kinnaird said house prices were unlikely to continue their upward climb into the new year. “The economic conditions remain uncertain, making it hard to assess the extent to which market activity will be maintained. Other pressures – like inflation, the broader cost of living, overall employment rates and affordability – mean we expect to see downward pressure on house prices into next year.”

Northern Ireland has experienced the strongest rise in house prices over the past 12 months, with the average home costing £4,294 more compared with last year, at £184,684.

While London maintains the top spot for the highest average house prices in the UK, at £524,592, prices have fallen by 3.8% over the past year.

The Halifax findings chime with those of the rival Nationwide, which reported last Friday that house prices had risen for a third consecutive month in November.

Source : TheGuardian

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While London remains the least affordable city for renters, the capital has seen the largest improvement in rental market affordability over the past five years, Benham and Reeves analysis of ONS data shows.

In London tenants spend 35% of their income on rent, however the cost of renting in the capital has fallen from £1,495 in 2017 to £1,450 in 2022, while typical incomes have increased from £2,975 to £4,155 per month over the same timespan.

As a result the current level of income required to cover the cost of renting has fallen from 50% in 2017 to the 35% required today.

Marc von Grundherr, director of Benham and Reeves, said: “Rental market affordability has long been a problem for the nation’s renters and while the percentage of income required to cover the cost of renting may have fallen across a number of regions, it certainly won’t feel like the challenge of renting has become any more affordable.

“Yes, an increase in earnings may have helped to an extent, but there are many who simply won’t have benefited from this increase. At the same time, the cost of renting has climbed across every region but one, putting further pressure on tenant finances.

“With the government doing its best to deter landlords from the sector, a reduction in the level of available rental stock will have also helped to drive up the cost of renting and this is an issue that doesn’t look like it will be easing any time soon.”

Across England as a whole 26% of tenant income is spent on rent, a proportion that has stayed unchanged since 2017.

Improving affordability

It’s not just London that has seen a reduction in the level of income required to cover the average cost of renting.

In the East of England the proportion of income required to cover the average rent has reduced by -4%, as high incomes of £3,560 stood against typical rents of £865 per month.

Affordability also improved in Yorkshire and the Humber (-2%), the North West (-1%), South West (-1%), and East Midlands (-1%).

Worsening affordability

Tenant affordability has worsened in three regions, by 5% in the West Midlands, 4% in the South West, and 1% in the North West.

There’s likely been an influx of tenants moving to these regions in the past five years, shifting the balance of supply and demand.

It’s important to note that all these increases came from a low base.

Even after affordability became tougher for tenants, average incomes made up 29% of rents in the West Midlands, 29% in the South West and 26% in the North West – not far from the national average.

Source : PropertyWire

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A significant one in three home buyers in the U.K. will pay cash for their property purchase in 2023, according to a report Monday from Zoopla.

Cash buyers will make up 32% of buyers across the nation by the end of the year, a notable jump from the average 20% share they’ve held for the past five years, the online property portal said.

That figure represents buyers from across all price points of the market, but a cash purchase is typically a luxury more readily available to the wealthiest of buyers.

“The U.K.’s property market, particularly at the higher end where properties cost a minimum of £1 million (US$1.21 million), has seen a noticeable boost in cash buyers over the past year,” said Nigel Bishop of nationwide buying agency Recoco Property Search. “This increase has been driven by less favorable interest rates and, with rates unlikely to decrease any time soon, will continue in 2024.”

Those who are dependent on mortgages though—and who are already battling those high interest rates—will have another hurdle if the number of cash buyers continues to grow, he said.

“The presence of more cash buyers could create further challenges for buyers who are reliant on a mortgage, as some sellers favor cash transactions for their chain-free nature which often results in an overall faster sales process.”

The high cost of borrowing is not only driving more buyers to opt to fund their buy with cash, it’s also rapidly cooling home prices across the U.K. resulting in the “most dramatic slowdown in price growth since 2009,” Zoopla said.

Property prices, which were up 9.2% a year ago, are now down 1.1% today and year-on-year price falls have been registered in 80% of the U.K.’s housing markets.

Source : MansionGlobal

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