Rex real estate agents say house prices are still going up despite the high interest rates

A lack of homes coming to the market continues to drive up home prices despite slowing demand from buyers, according to real estate agents.

Inquiries from potential buyers were down 25 per cent in July compared to the same time last year according to the Rics UK Residential Survey, which takes the opinions of authorized agents and surveyors.

However, buyers’ interest was up slightly from June which saw a 27 percent drop in inquiries year on year.

It’s the third consecutive report that demand has declined, and the expectation is that it will continue to decline.

The lower interest translated into lower sales volume for the month, but Ricks said he hasn’t cut prices yet.

The agreed sales were down 13 percent compared to the same period last year.

The slowdown in demand comes on the heels of higher mortgage rates and general economic uncertainty.

Last week the Bank of England announced a 0.5 per cent increase in the base rate to 1.75 per cent – the biggest rise in 27 years – sending new fixed mortgage rates even higher.

Since January 2022, interest on a two-year fixed mortgage has jumped from 1.3 per cent to 3.46 per cent, according to an analysis from L&C Mortgages, increasing average monthly payments by around £159.

The rise created demand for mortgage brokers, as potential buyers tried to keep mortgage rates low before lenders priced in the increase.

But despite rising costs, 63 percent of respondents to the RIX survey reported home prices increasing during July, broadly unchanged from 65 percent in June.

The only indication of a slowdown in price growth is the decline from an April high of 78 percent, which indicates an increase.

Tarrant Parsons, chief economist at Rics, said: “Amid a backdrop of sharply rising costs of living, slowing economic growth and rising interest rates, it’s no surprise that housing market activity is now losing some momentum.

With monetary policy set to tighten further over the coming months, sales forecasts point to a further decline in transaction volumes to come. However, in terms of housing prices, the limited available supply is still seen as a critical factor supporting the market.

“Although home price growth is likely to continue to moderate, respondents still expect prices to be slightly above current levels within a year.”

The cost of living “settlement” chains from the bottom

While many people are still eager to move their home, some real estate agents have raised concerns that the rising cost of living is beginning to influence the decisions of those at the bottom of the chains, such as first-time buyers.

Uncertainty among this group can have a knock-on effect on other homebuyers.

Jeremy Leaf, a North London estate agent and former Rics Residential Chairman, added: ‘We find at the sharp end that the desire to move outweighs concerns about sustained increases in interest rates and the cost of living.

On the other hand, these concerns disproportionately affect lower-income households threatening the bottom of some chains, leading to fewer and longer transactions.

“Demand is supported in particular by fewer options, lower unemployment and higher rents, so prices are still growing for the time being at least – albeit more slowly.”

Andrew Wishart of Capital Economics says that while housing supply is tight, it is not enough to support prices forever.

“With the balance of new buyer inquiries still lower than the balance of sales instructions,” he adds, “the survey remains consistent with lower prices by the end of the year.”

Wales tops the real estate sales chart…for now

On a quarterly basis Wales saw the highest number of sales per surveyor but in the long term it is expected that Yorkshire and the Humber will overtake as the area with the most activity.

There are more properties listed, but it is taking longer to sell. The “feeding craze” among buyers is receding.

Buyers take longer and some even bid on more than one property before making a final decision. The situation coincides with the beginning of the summer holidays.

In the lettings market, tenant demand continues to rise across the UK with 36 per cent of agents surveyed by Rics reporting an increase in enquiries.

However, 8 percent of respondents noted a decrease in instructions from the new owner. Rix said rents are expected to continue to rise sharply across the UK.