Analysts unsure whether RICS housing market optimism is justified

The latest housing market snapshot from the Royal Institution of Chartered Surveyors shows the number of buyers has risen for the second consecutive month, after an extended decline.

RICS members expect the momentum to continue over the next few months, despite 

the number of sales agreed having fallen very slightly and selling prices being slightly down over the past year.

New properties for sale haven’t looked this robust since October 2020, and the average agent has 42 properties on their books.

Meanwhile landlord numbers have continued to fall, while the number of tenants keeps rising – albeit slightly more slowly – and agents expect rents to keep rising.

This looks a relatively optimistic picture but 

Sarah Coles - head of personal finance at wealth management firm Hargreaves Lansdown - wonders whether the market could in fact be “falling with style.”

She comments: “The return of buyers is something to be celebrated. It comes after such a long period of decline that buyers were looking ready for the endangered list. They’re not flocking back in vast numbers: they’re approaching more tentatively to dip their toes in.

“And while this isn’t to be sniffed at, it needs to be seen in the context of a slight fall in agreed sales, and lower prices than the same time a year earlier. There have also been more properties put up for sale. 

“On the one hand, a well-stocked estate agent is one of the cornerstones of a healthy market. However, on the other, sellers could find it acts as a drag on prices.

“There’s also less positive news from the mortgage market in recent weeks. Many of those agreeing sales at the moment will have agreed their mortgages back when rates were slightly lower. Since then, the market has reassessed the chances of an imminent rate cut, and put mortgage rates up. 

“The average 2-year rate dropped from 5.93% on the 2 January to 5.56% at the end of the month, according to Moneyfacts. However, by the end of February, the average 2-year mortgage rate was back up to 5.75%. It could stifle demand as the impact feeds into the market.

“It's important not to underestimate the power of sentiment though. Those who earn more than average will be feeling better off, thanks to easing inflation and tax cuts. Meanwhile, more positive news on economic growth could inspire more hope. 

“The estate agents are definitely more positive about the future. It remains to be seen whether this is just in an estate agent’s nature, or whether better times really do lie ahead.

“If this is the dawn of a new age of optimism, it’s a boon for sellers, but yet more bad news for first-time buyers, who will have to wrestle with even more price rises at a time when mortgage rates are still significantly higher than they were. The answer for many, unfortunately, is that they will need a bigger deposit.”