Newly released data from Zoopla has revealed that over a third of homes in Southern England are in property markets experiencing a fall in house prices as the slowdown extends from London.
According to the data, the London slowdown has ‘rippled out’ into the commuter areas and further afield in Southern England, although the scale of the price falls remain moderate.
However, where there are annual price falls these are small and limited to higher value areas. Zoopla’s research team also predicts that Southern price falls will be short-lived when compared to London and by H2 2020 expect the scale of price falls to be much lower.
Average house price trends in the South of England
The average house price for the South as a whole stands at £323,910, up a marginal 0.6% over the last year. These regional averages hide a wide variation in growth at a localised level. This analysis uses Hometrack’s highly granular house price indices to track trends in prices at a sub-regional level.
The report uses house price indexation data to April 2019. Hometrack is the property valuation arm of the Zoopla business.
Over a third of markets (36%) are experiencing house price falls across Southern England, but in the vast majority of cases the level of price falls is less than -2.5%.
The report finds a clear link between house prices and whether markets are registering a softening in prices. In broad terms high value markets are more likely to be registering price falls than lower value, more affordable areas.
For example, in the South East region, the weakest annual growth can be seen in the likes of Woking (-2.3%), Epsom (-2.3%), Basingstoke (-1.9%) and Maidenhead (-1.6%) – all archetypal commuter towns. Other than Basingstoke, the average house price in these areas is well over £400,000. Whereas Dover (+3.4%), Hastings (+2.9%) and Shepway (+2.3%) on the coast, lower value areas which are less commutable to London, are performing relatively well.
In the South West, again, it is generally the higher value areas where price increases are lowest. Prime examples are Bath where the average price is £345,575 and prices are up +0.3% annually; the Cotswolds £365,630 (+0.7% annually) and Poole £307,667 (+0.3% annually). The lowest value areas which still have further scope for price growth such as Gloucester and Taunton are experiencing annual house price growth of 3.2% and 4.6% respectively and house prices are well below the regional average.
The why: London effect has rippled to the South but impact will be short-lived
Southern England is following London when it comes to average house price growth, but the proportion of markets experiencing falls is lower than in London and the decline in house prices is expected to be less protracted. London house prices grew rapidly between 2010 and 2016 but since then growth started to slow as affordability worsened and tax changes impacted demand from multiple buyer groups. It was in late 2016 that we saw a growing proportion of markets starting to register annual price falls – this continued to rise, reaching a peak of 80% of markets with price falls in October 2018.
Since then the coverage of price falls has started to reduce as the gap between what buyers are prepared to pay and what sellers are seeking to achieve narrows. Housing transactions in London have declined much more than prices, with overall sales volumes falling by 25% since 2014 as housing demand has weakened.
Richard Donnell, Research and Insight Director at Zoopla said, “The London housing market is coming to the end of what can be described as a 3 to 4 year repricing process where many areas have experienced small, single digit price falls. This is not surprising given the speed of price growth between 2010 and 2016. The year of peak sales activity in terms of actual recorded sales was 2014. Multiple tax changes and growing affordability pressures reduced demand, evidenced by a 25% drop in sales between 2014 and 2018. Prices have been adjusting since 2016 which is more a result of market fundamentals than Brexit which we see as a compounding factor.
Late last year we reached the peak in terms of proportion of local markets experiencing small annual house price falls. Since then the proportion of markets registering declines has fallen, as the three year re-pricing process approaches the end phase.”
House prices in the South of England are now following London but the trends are less pronounced. It took around a year for price falls in London to ripple to Southern markets and the downward trend started to take effect in Q3 2017. Currently, just over a third (36%) of housing is in local property markets that are registering annual price falls. The vast majority of markets are registering price falls of less than 2.5%. Zoopla’s research team expects more markets to experience price falls, peaking in H1 2020 and then slowing. Residential sales volumes in Southern England have fallen 10% since 2015.
Donnell said, “London is a large global city whose influence on the demand for housing is not solely limited to the 33 London boroughs. The current slowdown in Southern England which has extended out from London is a result of weaker housing demand after a period of high price rises. Sales volumes are down 10% since 2015 as buyers respond to multiple tax changes, new mortgage regulations and increased affordability pressures. However, we do not expect the extent of price falls to be as pronounced or prolonged as in London as prices overshot by a lesser amount in our view.”
Advice for households looking to sell this year
Donnell added, “The trends in London and Southern England are all part and parcel of the unfolding housing cycle. There remains plenty of demand for housing in Southern England but there are fewer buyers who are more cautious, seeking out value for money.
“For homeowners entering the market the key to securing a sale is to be realistic on pricing based on the profile of demand for homes in the local market. Our analysis shows how trends vary within regions and all local markets have their differences. Would be sellers considering selling should speak to a good local agent with their finger on the pulse of the local market to get a true view of demand and the right price to achieve a sale as market conditions look set to remain challenging over the rest of 2019. ”
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