House prices are showing signs of stabilising after months of weakening conditions, according to the latest survey from the Royal Institution of Chartered Surveyors (RICS), although buyer demand and sales activity remain subdued, and confidence remains fragile.
RICS data is significant because its members are involved in the sales process well before transactions reach completion, making the survey one of the housing market’s earliest barometers of changing buyer demand and pricing trends.
Unlike traditional house price indices, the RICS survey does not measure actual price changes. Instead, members are asked whether buyer demand, sales activity and prices are rising, falling or remaining unchanged in their local market. The results are then reported as a net balance, with a negative reading indicating more members are seeing declines than increases.
Its latest findings suggest the recent deterioration in demand, sales activity and prices may be starting to ease, although all three measures remain in negative territory.
New buyer enquiries
New buyer enquiries recorded a net balance of -34% in May, unchanged from April, meaning more members continued to report demand falling rather than rising. Agreed sales held steady at -37%, while RICS’ headline measure of house prices remained at -35% for a second consecutive month.
Although the figures still point to a subdued market, they mark the first time since the start of the year that key indicators have stopped getting more negative.
That could indicate that the market is moving towards a more stable phase after a prolonged period of affordability pressures, higher borrowing costs and weaker buyer activity.
Regional differences remain significant
Regional differences remain significant, though. Members in the South East and East Anglia reported the greatest downward pressure on prices, while Northern Ireland continued to record firm growth.
The survey also reveals improving sentiment over the longer-term outlook. While near-term sales expectations remain negative, they improved to -25% from -32% and -34% in the previous two surveys. In addition, looking 12 months ahead, sales expectations edged into positive territory at +2%.
Price expectations followed a similar pattern. A net balance of -45% of respondents expect prices to fall over the next three months, but expectations for the year ahead were in positive territory at +6%.
Tarrant Parsons, Head of Market Research and Analysis at RICS, said: “The latest survey data suggest the recent downturn in activity may be beginning to stabilise, with several key indicators broadly holding steady. However, as they remain in negative territory, it would be premature to interpret this as the start of a recovery.”
Uncertainty around inflation and interest rates
Parsons said uncertainty around inflation and interest rates continues to weigh on sentiment.
“The decline in CPI inflation to 2.8% in April provided some temporary relief, but the Bank of England has signalled that further inflationary pressures are likely as higher energy costs continue to pass through.
“Against this backdrop, the prospect of further rate rises cannot be dismissed, and until there is greater clarity, market sentiment is likely to remain fragile.”
Rental market under pressure
RICS reports, though, that the rental market remains under pressure. Tenant demand increased during May, with a net balance of +14% of contributors reporting a rise, while landlord instructions remained firmly negative at -28%. Rent expectations also strengthened to +36%, the highest reading since May last year, highlighting the continuing shortage of rental homes.
Overall, the findings suggest that although the housing market remains subdued, demand, sales and price indicators are no longer deteriorating at the same pace, and the longer-term expectations have turned positive.
