2014 Hamptons International: 'Transactions, Not Prices, Show Recovery'

Transaction volumes and not price rises or falls are key to understanding whether the housing market is truly recovering, according to Hamptons International.

It is the first of the major agencies to unveil its thought on the market next year and its new research director Fionnuala Earley does not hold back.

“The fixation with house prices as an indicator of recovery is misplaced. Transaction levels are a far superior indicator of housing market health. A liquid and active market is the key to avoiding volatility and to ensuring a stable and sustainable housing market in the UK” says Earley.

This is a warning to journalists not to accidentally or intentionally mislead, but is also putting the other big agencies on notice that they, too, are missing the point when they emphasise price movements over any other measure of activity.

Hamptons’ approach has additional authority for two reasons.

Firstly, the firm can no longer be dismissed as yet another high-end estate agency forecasting for its rich sellers and even richer buyers - it now taps into data provided by its parent organisation, Countrywide, as well as the commercially-available data from mortgage companies, government departments and other residential industry consultancies.

In other words, its forecasting relates to the entire market and not just the unrepresentative top end.

Secondly, the firm has a new and heavyweight research department with Fionnuala Earley (ex-Nationwide) and Johnny Morris (ex-Hometrack). As its recent involvement with an online FT Q&A exercise demonstrated, Hamptons is now one of the research ‘big boys’.

So for the future it forecasts:

- transactions will grow year on year for the next three years, will break the one million mark in 2016 and will grow by 50 per cent between now and 2018;

- the uplift in activity is due to improved confidence built on economic recovery and Government stimuli such as Help to Buy and Funding for Lending;

- house prices in England and Wales will increase by 6 per cent in 2014 and by 24 per cent in the next five years;

- house prices in Central London will grow most strongly in 2014 at  8 per cent and by 32 per cent over five years;

- new build sector increasing but providing only about 10 per cent of transactions.

“Transaction levels in the UK are now rising and we expect double digit growth to continue as better economic conditions, improved confidence and mortgage availability allow people to buy and move house more easily again. But it will take a long time before they return to levels we became accustomed to five years ago. Households are still stretched and as prices increase, affordability will bite too” warns Earley.

“House prices in London and the South of England will continue to outperform the average for England and Wales, while Northern parts of the country will see a more subdued revival. Market dynamics which shift buyers from higher to lower priced areas will boost prices in the Central London market and also the South as families migrate out of the Capital.  In the Prime Central London market we expect demand to soften as investors search for better yielding assets elsewhere” she says.

Hamptons says there will be a reduction in lettings demand as previous-renters switch to buying. “While affordability in the rental market has deteriorated over recent years, the market is still comfortably supported by demand in areas where house prices are least affordable as well as demand from skilled migrants and corporate businesses” says the company’s 2014 forecast.

Critical to understanding Hamptons’ forecast is the extensive health-warning the firm gives, too. It says:

- wage growth will be modest for some time
- unemployment is unlikely to fall rapidly
- inflation will stay above its two per cent target for some time
- there are risks from political or economic volatility in the US and oil-producing countries.

Other agencies' and consultancies' forecasts will appear here as they are released...

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