2017 Market Outlook: some housing market predictions
Price growth in the housing market slowed in 2016, mostly as a result of Stamp Duty changes. But what might 2017 hold? Here are a selection of likely trends.
Average monthly transactions are down 14% over 2015. House price growth, while still hovering around 7.5% annually, has been losing pace as the year has progressed. We expect the market will plateau in terms of both price growth and transactions, largely reflecting the broader economic outlook, with weaker earnings and employment growth.
Outer London and the regions likely to outperform
Marking a departure from a decade long trend, there has been a notable ripple out of activity from inner London, with new build sales performing better in outer London in the last year. This is reflected in prices, with the outer London boroughs posting faster rates of growth over the last year than inner London boroughs. For example, the outer London boroughs of Walthamstow, Barking & Dagenham and Newham recorded some of the highest rates of growth recently. This partly reflects the more active domestic buyer market, which typically buys in peripheral locations, and investors looking for a better yield.
We expect this trend to continue into 2017, and so the atypical outer London price growth ‘gap’ seen over the last two years will persist.
A mixed bag for investors with fewer cash buyers
In the last three years the share of cash buyers of housing has moved from its long-term average of 30% to nearer 40%. However, they all but disappeared from the market in the second quarter of 2016. However, the continued favourable exchange rate will ultimately entice a return of foreign buyers; the lower currency means house prices for overseas purchasers will look exceptionally attractive and virtually negate the increased stamp duty.
Shift in household composition and type: sharing to become more prevalent
The recent shift in tenure of a decline in owner occupiers and a rise in private renters has been well documented. However, shortfalls in housing have also led to a marked increase in sharer households, particularly in London, where affordability is most constrained. Households with 3 or more adults have grown by 28% in London over the ten years to 2011, compared with growth of 17% in England and an overall household growth of 8% over that same period. Households with parents and older children (over 18 years) living together have increased by 16% over the decade in London, compared with an increase of 11% in England as a whole.
This trend looks unlikely to reverse any time soon. A recent CBRE study found that 40% of ‘millennials’ (aged 20-29) in the UK are still living at home with their parents. With rents and house prices (deposits) continuing to grow, flat and house sharing (particularly in London) will endure.
Bigger Government interventions in housing supply
Finally, we should just remind ourselves that the Government has again proposed a significant supply-side boost to the housing market – we wrote about that here. Suffice to say we think we’re unlikely to see much effect from these interventions in 2017.
Our full thoughts on the prospects for the UK housing market are included in our 2017 UK Real Estate Market Outlook, published yesterday. The report is here.
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