West Midlands regional housing market update Spring 2017 Trends and data on the West Midlands in the context of the national picture. Powered by
2017 Regional housing market update The UK economy, of which the residential property market is just a part, is today at a crossroads on an unprecedented number of levels. At the very highest level there is a sense that the status quo which established itself after the Second World War is entering a state of flux. The rise of China, Brexit and an establishing resistance to globalisation are just a few of the tectonic plates on-the-move. The structure of the economy has reached a crossroads with robots, driverless cars and home-working set to redefine geography and land economics. But what does this mean for estate agents across the UK? Well, the global economic recovery which emerged out of the financial crash of 2008 has just celebrated it s eighth birthday. There is a rule of thumb that economic cycles last about seven years. Does this mean we re on the cusp of a recession or, even worse, are we about to see another Northern Rock? I don t think so - and here s why. As we near the end of the economic cycle we re in a much saner lending environment than we were in 2008, so a crash is unlikely. The market won t be immune from the effects of Brexit, but we as agents should be prepared to exploit the opportunities it presents. Iain McKenzie, Chief Executive Why we re in a very different place to 2008 Recoveries don t just die of old age. While the cyclical nature of world economies is undeniable, crashes are always attributable to something specific rather than natural causes. For example, one significant cause of the 2008 crash was irresponsible lending and sloppy securitisation. It all went wrong when the good mortgages - those likely to be serviced - were packaged up and sold along with those that were not. Eventually it became evident to the holders that they had no idea what the true value of their holding was. Confidence evaporated and billions of pounds in value was wiped out. In that sense global residential markets were at the centre of the last crash, even though it was the fault of the bankers and rating agencies. configured to stop things getting out of hand. Governments were highly motivated to impose stricter guidelines as it was taxpayers money that had to bail out these banks which were too big to fail. UK annual house price growth Annual house price growth (%) 15 10 5 0-5 -10 It s a fool s errand to predict the future these days but I don t think this will happen again. The rules that banks had imposed on them (stress testing, Mortgage Market Review etc) have been -15-20 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17
Spring 2017 Top 10 Regional growth Rank Region Annual HP Growth (%) I think that if there is a spectre on the horizon it s not a lending crisis but rather inflation. In the wake of Brexit, the low value of the pound has meant that the prices of things we import have gone up, which means UK manufacturers cost-bases have gone up which might get passed on to consumers. Very simplistically, if interest rates go up, mortgages become more expensive and fewer people can afford to buy a home. If inflation starts affecting the housing market, the threat isn t a return to 2008, but rather 1989 when inflation started to rocket, reaching an all-time high of 8.50 percent in April 1991. Mortgage repayments went through the roof, but the inflation itself eroded the debt. Whatever the future economic landscape looks like, online agents like Purplebricks - whatever we may think of their approach - have thrown down the gauntlet and dared us to prove we re better. The success with which we do so will likely be at least as important as external economic factors. 1 East of England 9.4 2 South East 8.7 3 South West 7.4 4 London 7.3 5 West Midlands 5.8 6 East Midlands 5.6 7 North West 4.6 8 Wales 4.2 9 Scotland 4.0 10 Yorks & Humber 2.7 11 North East 2.2 Capital value uplift across the regions According to the Land Registry House Price Index, it was the East of England which saw the greatest increase in capital values in the 12 months to January 2017. Prices in this region were 9.4% up in the year. The eastern region has been the best performing region since June 2016, with London being the winner in the six months up to May 2016. Nationally, we can see a familiar north-south divide with the southern regions outperforming their northern counterparts by almost double (8.2 per cent growth vs 4.2 per cent growth). Current capital values paint a similar picture with the average price in the southern regions standing at 333,000 vs 153,000 in the north. There s nothing desperately surprising in these patterns. The dynamics underpinning each regional market make the differences in performance fairly inevitable, particularly given the UK s Londoncentric structure. Only when the government actively starts to geographically rebalance the economy will this pattern change. Annual capital inflation Under 4% 4.0% to 4.9% 5.0% to 5.9% 6% or more
2017 Regional housing market update National market events and policy changes in recent years The mortgage market By the middle of 2014 the new mortgage regime ushered in by the Mortgage Market Review was firmly in place. There had been some concern that these new stricter lending criteria would put a hard break on the housing market, but as you can see, it seems to have tamed the market without damaging it. Most government schemes have been aimed at helping boost first-time buyer numbers. As a result, there were 339,000 firsttime buyers in 2016, an increase of 8% over 2015. Home movers on the other hand fell slightly to 360,000, marking three years in which movers have effectively remained at the same level. Momentum continues to build for remortgaging in the homeowner and buy-to-let space. Activity was up 14% in 2016 compared to the previous year, as competition amongst lenders, along with the recent rate cut and launch of the Term Funding Scheme, have kept mortgage rates at historic lows. We expect to see this continue for most of this year as the low rates encourage more borrowers to refinance. House building The main overarching story for housebuilding is the same as always; there are more houses being built, but targets aren t being reached and demand continues to outstrip supply. The only new ingredients in the mix are the rising cost of materials owing to the weak pound, and (in the longer term) the potential for the supply of skilled labour to be affected by changes to the free movement of people. More interesting is what s happening with build to rent - the practise of building apartment blocks with the specific aim of renting them out and running the building centrally. The government released a White Paper in February of 2017 called Fixing our broken housing market which set out a broad range of reforms that the government plans to introduce to help reform the market and increase the supply of new homes. In it, local planning authorities will have to proactively plan for units specifically designed for the private rental market where there is an identifiable need. This is obviously a huge boon for build-to-rent. There is enough institutional capital pointing at build to rent to add 15,000 homes to the housing supply every year until 2030. What impact did the stamp duty change have? After April 2016, people looking to buy a second property were hit by an extra 3% in stamp duty. The policy was principally aimed at reducing the flow of private housing stock into the private rented sector by buy-to-let landlords but second home buyers were also affected. Looking at the transactions data there is a very pronounced spike in transactions in March 2016 when people sold before the change came into effect. This meant that transactions for the remaining months of the year were lower than usual, as the year s transactions were frontloaded. Monthly transactions (thousands) 200 150 100 50 0 J F M A M J J A S O 2014 2015 N D 2016 2017
Spring 2017 West Midlands regional analysis This hotspot map shows the capital growth of districts in the West Midlands over the last 12 months. Stafford 8.3% East Staffordshire 9.5% N. Warwickshire 8.6% Nuneaton & Bedworth 9.3% Coventry 9.2% Redditch 8.2% Annual capital inflation under 2.0% 2.0% - 3.9% 4.0% - 5.9% 6.0% - 7.9% 8.0% - 9.9% 10% or more
2017 Regional housing market update The West Midlands property market is a patchwork quilt of micro-markets, each with their own particular drivers and nuances. Some markets have higher levels of turnover than others and indeed some perform better than others when it comes to capital inflation. However, the important thing for an agent is to understand the soul of the market so they can best serve buyers and sellers in their patch. Iain McKenzie, Chief Executive The latest data from the Land Registry House Price Index shows us the anatomy of the region s constituent housing markets. There is no single measure which provides a complete picture of buoyancy within a market, but for the sake of simplicity we show the top 20 markets by the total value of all property transactions in the last year. This is calculated by multiplying the average value of homes by the number of sales. This gives a crude indication of how large the market is from an agents perspective but doesn t account for the level of competition or speciality markets. On this basis, the district with the largest market is Birmingham which saw 2.1bn worth of transactions in the year to January 2017. This was followed by Shropshire with 923m worth of sales over the same period. The district with the highest overall average house price was Stratford-on-Avon where prices sit at 305,900, which is 40% above the national average. The market with the highest number of transactions was Birmingham with 12,477 sales occurring during the period. Hotspots of total value of properties sold in the year to January 2017 Rank Area name Avg property price (Year to January 2017) Total number of sales (annual) Indicative size of market * 1 Birmingham 165,300 12,477 2.1bn 2 Shropshire 204,500 4,515 923m 3 Solihull 261,500 3,127 817m 4 Coventry 165,300 4,587 758m 5 Warwick 292,400 2,293 670m 6 Dudley 158,700 4,101 650m 7 Stratford-on-Avon 305,900 1,954 597m 8 Herefordshire 221,200 2,664 589m 9 Wychavon 259,900 2,016 524m 10 Walsall 147,700 3,144 464m 11 Sandwell 130,400 3,207 418m 12 Stafford 196,600 2,108 414m 13 Bromsgrove 255,700 1,578 403m 14 Telford and Wrekin 155,100 2,449 379m 15 Lichfield 229,300 1,578 361m 16 Wolverhampton 131,600 2,743 361m 17 Stoke-on-Trent 100,900 3,534 356m 18 Rugby 212,300 1,636 347m 19 Worcester 196,100 1,675 328m 20 Nuneaton and Bedworth 159,700 2,020 322m * Average price in the year to January 2017 multiplied by the total number of transactions in the same period.
Spring 2017 Market outlook The triggering of Article 50 has set off a chain of events that will inevitably cause uncertainty across many industries, and the property market is unlikely to be entirely immune from the positive or negative effects. Over the last year, numerous changes within the housing market have moved the goalposts for vendors and investors. But how do I foresee the nature of these changes across the country? I expect to see low interest rates that will act as a buffer to protect the economy and the housing market from any negative trends as Brexit unfolds. Price growth should be back on the rise after there is economic clarity. However, interest rate rises would lead to some stagnation. Over the next four years, the highest growth is likely to come from areas away from the traditional London stronghold. Rising prices have stretched borrowers to their resource limits in the capital and, as a result, the East and South East will see the best growth rates. There is an opportunity for growth in markets in the Midlands, Wales and Northern England, and any moves to make the country less London-centric will move them closer to realising their full potential. Manchester and other major economic northern cities are already experiencing renewed vigour and have the potential to significantly outperform their regions. Scotland will see similar price growth, with the strongest markets emanating from the central belt. Aberdeen will pull down national figures as long as oil prices continue to remain low, a stark difference from when it achieved one of the strongest post-credit crunch growths. I expect to see low interest rates acting as a buffer to protect the market from any negative trends stemming from Brexit negotiations Iain McKenzie Chief Executive Disclaimer This report is supplied subject to our Terms and Conditions, which are available on the ResiAnalytics website (ResiAnalytics.com/terms). This report is supplied for general interest and information purposes only. It is produced using publicly available information and/or information from third party sources which may be inaccurate, outdated or incomplete. We therefore make no representations or warranties of any kind, express or implied, about the completeness, accuracy or reliability of the information contained therein or its suitability for any purpose. Our reports are not intended to be a substitute for either independent professional advice or your own research and due diligence. You must make your own enquiries of any property, location, area or any other subject matter that may be provided or referred to through our reports or the Website, take independent advice from suitably qualified professionals and undertake your own due diligence where necessary, and particularly before entering into any property transaction of any description. The information in this report should not therefore be relied on for any decision, transaction or agreement. Any reliance you place on such information is strictly at your own risk and we shall not be liable for any losses suffered as a result of relying on our reports.
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