- The Neath property market is on the
verge of a ‘tipping point’. - The rate of house price growth has
started to ease with a reduction in the number of properties that will sell in Neath
in the coming 12 to 18 months. - Yet, rising interest rates and the
cost-of-living issues won’t knock everybody out of the property market and
there shouldn’t be a housing bubble for two vital reasons.
The Neath property
market is on the cusp of a tipping point. It’s a tipping point that will influence
Neath house prices, the number of properties available to buy, demand for those
Neath properties and the lives of every homeowner and the property-owning
buy-to-let landlords in Neath. This shift in the Neath property market is a big
deal so let me explain.
What are the two vital reasons for this shift in the Neath property market?
First, the
easy-going Neath property market goldmine of the past couple of years will end.
The
bonanza of the Neath property market for house sellers, which was primarily
fuelled by cheap money, is receding and the scales are starting to tip somewhat
more in favour toward Neath buyers (which is not a bad thing – more of that
later).
Secondly, and
more significantly, this shift in the Neath property market is not a collapse.
Let me enlighten
you as to why this is.
One of the
key influencing factors of the property market is what people pay on their
mortgages. The higher the mortgage interest rate, the higher the mortgage
payments.
Mortgage
rates are usually 1% to 2% higher than the Bank of England base rate.
Therefore, mortgage rates are increasing on the back of higher Bank of England
interest rates.
So, whilst
we have seen rates rise four times in the last year, the Bank of England base
rate stands at only 1%. Compare that with Bank of England base rates in the
1980s (when the average base rate was 12.63%), 1990s (when the average base
rate was 8.8%) and the 2000s (when the average base rate was 4.7%). These high base
rates (together with high unemployment) contributed to the woes of the UK
property market crashes of the early 1990s and 2008.
From the
gloomiest economist, the worst-case scenario doesn’t see Bank of England base
rates rising past 3%.
This means
the prospect of a housing crash is minimal because of the comparatively low
unemployment and base rates still at all-time lows.
What are the
signs of the shift in the Neath property market?
The statistics show a slight shift in the scales between it being a 100% seller’s market for the last two years to more an 80% sellers and 20% buyer’s market and here are the reasons why:
1. The number of houses for sale has grown by 17% in six months.
Nationally,
the number of properties available to buy has increased by 17.07% in the last
six months, rising from 389,558 in January to 456,048 by the end of May. This
rise in the number of properties on the market is a crucial component of the
housing market puzzle. Let me explain why.
Before
Covid, house buyers having more choice of properties to buy in the summer
months would have been thought unremarkable. Yet the stark shortage of properties
to buy in the last couple of years has caused national house prices to grow by
19.66%. Any growth or reduction in the number of properties for sale is significant
(hence a key bellwether).
This means that buyers will have more choice of properties to buy this summer.
2. The number of properties sold in the UK has dropped 11.4% year to date 2022 vs 2021
When I say
sold in this context, I mean the month the house sale price is agreed, and the
sold board goes up (not on completion when the keys are handed over).
Looking at
the national number of properties sold on a month-by-month basis, things have
started to shift since March.
In
February 2021, 111,648 houses sold (STC) in the UK compared to 117,734 for the
same month in 2022. So almost identical.
Yet, March
2022 saw 15.3% fewer houses sell in the UK than in March 2021 (129,655 in March
2022 compared to 153,023 in March 2021).
April 2022
saw 20.6% fewer houses sold than April 2021 (117,737 compared to 148,228).
So, all
doom and gloom? No! Not at all.
The spring
months (March and April) of 2021 saw the rush for houses to be sold to beat the
Stamp Duty Holiday ending in June 2021, so of course, March and April’s 2022
figures would be lower.
The panic buying of March and April 2021 returned to normal levels in May 2021, meaning the number of houses sold in May 2022 was only 4.3% lower than in 2021 (131,941 in May 2022 vs 137,800 in May 2021).
3. The number of house price changes has increased by 69% since January.
In January 2022, the number of house
price changes was 27,063 and has been increasing steadily each month to 45,792
in May 2022, an increase of 69%. This means Neath house sellers have to be more
realistic with their pricing to get their properties sold.
Take all these things together and you can see that there are
signs that the Neath property market has started shifting more into buyers’
territory yet is a long way from the traditional idea of a ‘buyer’s market’.
These
points can be backed up with the house price data for Neath.
In April
2021, Neath house prices increased by 3.6% in one month.
Yet last
month, for example, Neath house prices dropped 2.2%, and the month before they dropped
0.9%. Not all doom and gloom when you consider …
Neath house prices are still 16.4%
higher than a year ago.
We have
been in fifth gear for the last two years with extra rockets attached. We are
certainly not going into reverse gear, more a drop down the gears to fourth!
I know
many aspiring Neath homeowners are waiting for house prices to fall, however, I
do not foresee any large Neath house price drops in the next few years. In
essence, whilst I do believe the rate of house price growth will slow down, that
does not mean it will go into reverse.
Some would ask what increasing
interest rates and inflation will do to the Neath property market?
As I’ve
already discussed in several recent articles on my property blog, if interest
rates don’t go above 3.5%-4%, this will not be a game-changing issue for the Neath
property market. Most homeowners are on a reasonably long-term fixed-rate
mortgage (typically 5+ years) and will be able to transfer them across to the
new house purchase if they want to move.
Now, of
course, that won’t help first-time buyers. I agree there will be fewer Neath
first-time buyers, yet these will be replaced by landlords re-entering the Neath
property market (as I discussed in a previous article a few weeks ago).
Neath
house prices will also be further protected by the effect of inflation on house
prices (again discussed in a separate article about a month ago).
As the
number of properties coming to market has increased, the choice of properties
to buy has expanded. This will encourage those potential cash home buyers who
have also been waiting on the sidelines (alongside the landlords) to start
viewing and making offers. They, too, have not wished to get into a bidding war
but patiently waited for the market to ease.
And it is for those reasons in this article (and my other recent articles mentioned above) I do not see a Neath housing bubble on the horizon.
If you
would like those other articles, don’t hesitate to contact me, and I will send
you the links.
