Finding enough homes to view has been one of the biggest challenges facing buyersin 2021. This is no surprise since there are fewer properties for sale than at any time over the past decade.
The lack of choice is causing some peopleto deter a move. But do low stock levels reduce transactions and when will the stock squeeze start to reverse?
In recent years, two types of market have developed when the stock of properties fell, although not to the current level. In the fevered market of 2014, the average time to sell decreased to a few days as global competition for London real estate grew. But this did not reduce the number of sales in that year, which were at their highest since 2007.
In 2012, supply was also low, but so too was demand - because the country was emerging from a recession. Many owners chose not to sell because they sensed they would not achieve a good price. Others could not afford to sell because they were in negative equity, or feared receiving less than they had paid for their property. At this point in the cycle, the lack of stock was a product of low demand rather than the other way round.
These examples do not provide a reliable guide to the direction of the market in 2022. Prices are at record highs almost everywhere. As a result, there is almost no negative equity and the number of people who sold a home for less than they paid for the property accounted for less than 5% of sales in 2021.
The boom of 2014 was driven by economic recovery. But the surge in property values of 2020 and 2021 was caused by a Covid-induced reassessment of the home and the space and other facilities that it should offer.
Over the past decade, there have been peaks and troughs in the number of homes for sale. But the overall downward trend may be about to be reversed for two structural reasons.
Since interest rates are set to rise over the short to medium term, the cost of extra space for anyone buying or owning a home with a mortgage will increase. This means that households are less likely to hang onto properties too large for their needs, encouraging early downsizing among those close to paying off their mortgages. These homes will start to come onto the market this year and next.
Stock levels depend on people moving - from their first home or their fifth. Younger homeowners relocate much more often than older counterparts. The average one-bedroom flat is bought and sold three times during the period when the average detached five-bedroom house remains in the hands of one owner.
The reverberations from collapsing home ownership levels among the young since 2008 continue to be felt in the current market. The majority of younger people who are currently selling a home bought it in 2015. Since then, the number of young homeowners has increased as the English Housing Survey underlines.
In light of this, we are expecting stock and transactions to gradually move upwards, as larger numbers of younger homeowners who have outgrown their homes seek to up-size. Hybrid working, part in the office and part at home, will increase the demand for space among this group of buyers, a group which moves home more often than anyone else.
In this century, there were typically about 1.2 million home sales a year. This total was exceeded only in the boom years of 2006, 2007 and 2021.
But we forecast a shift to a new normal of 1.3million, as a new generation of first-time sellers, about 75,000 larger than the previous cohort, take the next step up the housing ladder. Household rightsizing in response to higher interest rates will further boost transactions.
We forecast that the increase in stock levels will begin this year, with more homes on the market by December than there were 12 months ago. This change will come as a relief to house-hunters. However, it should also put downward pressure on price growth, which has been powered in part by the lack of homes for sale.
