What to watch in 2021 - The snakes and ladders of the residential property market August 2021
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What to watch in 2021 The snakes and ladders of the residential property market August 2021
Overview
This paper brings together a The housing market performance remains
selection of economic and strong but some indicators have cooled off
residential market data that can slightly since our last ‘What to Watch’
be used to assess how the report. Demand has weakened slightly
housing market is performing. with approvals and new buyer enquiries
down. However, house prices are growing
Each metric is evaluated in turn
at the fastest rate in almost 17 years and
and accompanied by a snake or
sales volumes are at record highs.
ladder to reflect whether it is
Notably, London continues to trail behind
positive for the housing market.
the rest of the UK.
All data is the latest available as
The surge in sales volumes and prices in
of 18 August 2021, arrows on
June partly reflects the tapering of the
the summary page indicate
stamp duty holiday. However, we expect
movement since the last data
activity to remain robust in the near-term
release.
as buyers can still take advantage of the
stamp duty holiday for homes up to
£250,000 until 1 October.
AUGUST 2021 2 RESIDENTIAL MARKET – INDICATORS
WHAT TO WATCH
OF RECOVERY
IN 2021
Summary
Economic
FTSE Interest Household Retail Consumer Journeys
Unemployment 100 rates savings performance confidence around London PMI Inflation GDP
4.7% 7,032 0.1% £9.8bn 10% -7 64% 59 2.4% 22.2%
(May 2021) (July 2021) (August 2021) (June 2021) (June 2021) (July 2021) (August 2021) (July 2021) (June 2021) (Q2 2021)
Residential
Availability Mortgage UK Residential UK average London average Price Sales
Bricks Enquiries Instructions of credit approvals sales price price expectations expectations
164m -9 -46 16.5% 98% 219% 13.2% 6.3% +30 +5
(June 2021) (July 2021) (July 2021) (Q2 2021) (June 2021) (June 2021) (June 2021) (June 2021) (July 2021) (July 2021)
All data shown is the latest available as at 18 August 2021, arrows indicate movement since last data release.
AUGUST 2021 3 WHAT TO WATCH IN 2021
Economic - Unemployment rate
5.4 It’s a step up
5.2
5.0
4.8
Current state
4.6 Latest data shows unemployment rate has decreased to 4.7% in
%
the 3 months to June 2021, down from 4.8% recorded in the three
4.4 months to May 2021. The number of payroll employees increased
for the sixth consecutive month, however, remains 201,000 below
4.2 pre-pandemic levels.
4.0
Assessment
3.8 The unemployment rate has decreased for the sixth consecutive
month. This recovery is expected to continue with the easing of
3.6 many coronavirus restrictions. In May to July 2021, the number of
vacancies reached a record high at 953,000, almost 170,000
above its pre-pandemic level.
3.4
May-18
Jul-17
Jul-18
Jul-19
Jul-20
Jan-17
May-17
Jan-18
Jan-19
May-19
Jan-20
May-20
Jan-21
May-21
Mar-20
Nov-17
Nov-18
Nov-19
Nov-20
Sep-17
Sep-18
Sep-19
Sep-20
Mar-17
Mar-18
Mar-19
Mar-21
Why is it an important indicator for residential?
Widespread unemployment reduces the number of potential home
buyers. When the labour market is weak, the fear of redundancies
may put potential buyers off. Higher unemployment tends to
Source: Labour Force Survey
suppress wage growth, which in turn affects the ability to buy.
AUGUST 2021 4 WHAT
WHATTO
TOWATCH
WATCHIN
IN2021
2021
Economic - FTSE 100
9,000 25%
20%
Stalemate
8,000
15%
7,000
10%
6,000
5%
Current state
5,000 0%
The FTSE remained largely flat in July 2021 at 7032. However,
Index
the FTSE is up 19% compared with this time last year.
4,000 -5%
-10% Assessment
3,000
-15% The FTSE continues to regain losses caused by the pandemic but,
2,000 it is still 3.5% below share prices seen at the start of 2020.
-20%
1,000 Why is it an important indicator for residential?
-25%
A fall in shares can lead to liquidity issues for some investors and
0 -30% first-time buyers who have deposits in equity ISAs.
Jul-16
Jul-17
Jul-18
Jul-19
Jul-20
Jul-21
Jan-17
Apr-17
Jan-18
Apr-18
Jan-19
Apr-19
Jan-20
Apr-20
Jan-21
Apr-21
Oct-17
Oct-16
Oct-18
Oct-19
Oct-20
FTSE 100 (LHS) YoY Change (RHS)
Source: Macrobond
AUGUST 2021 5 WHAT
WHATTO
TOWATCH
WATCHIN
IN2021
2021Economic - Interest rates
18 Stalemate
16
14
12
Current state
10 The Bank of England base rate was cut on 19 March 2020 to
0.1%. It has remained at this historic low level since.
%
8
Assessment
6 Such low levels of interest suggests the Bank of England is hugely
pessimistic about the underlying economic health of the UK.
4
Why is it an important indicator for residential?
2 A low base rate is generally a sign of a weak economy with low
inflationary prospects. It is used to stimulate spending to boost the
0 economy. Low interest rates are beneficial for the housing market
when lenders pass the low rates on to consumers.
Aug-75
Aug-77
Aug-79
Aug-81
Aug-83
Aug-85
Aug-87
Aug-89
Aug-91
Aug-93
Aug-95
Aug-97
Aug-99
Aug-01
Aug-03
Aug-05
Aug-07
Aug-09
Aug-11
Aug-13
Aug-15
Aug-17
Aug-19
Aug-21
Source: Bank of England
AUGUST 2021 6 WHAT
WHATTO
TOWATCH
WATCHIN
IN2021
2021Economic - Household savings
It’s a slither
down
30,000
25,000
Household deposits (£bn)
20,000
Current state
Latest data shows the level of deposits in bank accounts
15,000 increased by £9.8bn in June 2021. This is higher than the
£7.3bn increase in May.
10,000 Assessment
June saw the first month of increase in 2021 so far reflecting
decreased spending. This is potentially due to the rise in Delta
5,000 variant cases. However, it is still below the twelve-month average.
Why is it an important indicator for residential?
0
The saving ratio tends to rise as the economy weakens, as
Mar-19
Jun-19
Mar-20
Jun-20
Mar-21
Jun-21
Jul-19
Sep-19
Jul-20
Sep-20
Apr-19
Apr-20
Apr-21
Feb-19
Oct-19
Feb-20
Oct-20
Feb-21
Jan-19
May-19
Nov-19
May-20
Nov-20
Aug-19
Dec-19
Jan-20
Aug-20
Dec-20
Jan-21
May-21
consumers become more risk averse, paying off debts and
increasing savings. However, often the level of savings itself can
fall due to lower earnings. Here we are looking at deposits held
in banks. The level at which these deposits are drawn down post-
lockdown could indicate confidence in the wider economy.
Source: Bank of England
AUGUST 2021 7 WHAT
WHATTO
TOWATCH
WATCHIN
IN2021
2021Economic - Retail performance
140 It’s a step up
120
Year-on-Year Retail Performance (%)
100
80
60
Current state
40
Retail sales increased by 10% year-on-year in June 2021, down
from 25% a month prior.
20
0 Assessment
Retail sales volumes grew 0.5% between May and June and were
-20 up 9.5% when compared with their pre-pandemic levels. Non-
food sales grew by 25% year-on-year but saw a monthly fall of
-40 1.7%. Food stores saw annual growth of 0.3% and a monthly
growth of 4.2%. The largest contribution to the monthly increase
-60
came from food stores which may be linked with the start of the
Euro 2020 football championship.
-80
Jun-15
Jun-16
Feb-17
Jun-17
Jun-18
Jun-19
Feb-20
Jun-20
Jun-21
Oct-15
Oct-16
Oct-17
Oct-18
Oct-19
Oct-20
Feb-16
Feb-18
Feb-19
Feb-21
Why is it an important indicator for residential?
Retail has been hit hard by the lockdown. As the restrictions are
relaxed, we expect a bounce back. Sustained strength in retail
Retail Sales Food Retail Sales Non-Food
sales will reflect that households are feeling more confident about
Source: ONS
their personal situations.
AUGUST 2021 8 WHAT
WHATTO
TOWATCH
WATCHIN
IN2021
2021Economic - Consumer confidence
10 It’s a step up
5
0
-5
-10 Current state
Latest data shows consumer confidence rose for the sixth consecutive
Index
-15 month in July 2021 to -7, up from -9 in June 2021. It is now ahead
of readings recorded pre-pandemic in March 2020.
-20
Assessment
-25
Confidence increased on the general economic situation over the last
-30 12 months and the major purchase index. However, perceptions
around personal finances and the economic situation over the last 12
-35 months are down. Consumer confidence has regained the losses due
to Covid-19, however, consumers are aware of the pressures the
-40 economy might face in the next 12 months due to rising infections,
price inflation and the end of the furlough scheme.
Jul-13
Jul-11
Jul-12
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jul-19
Jul-20
Jul-21
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
Jan-20
Jan-21
Why is it an important indicator for residential?
When confidence is low consumers are less likely to make big ticket
transactions like buying a home. Rising confidence is correlated with
Source: GfK rising activity.
AUGUST 2021 9 WHAT
WHATTO
TOWATCH
WATCHIN
IN2021
2021Economic - Journeys across London
02/08/2021
02/07/2021
Stalemate
02/06/2021
02/05/2021
02/04/2021
02/03/2021
02/02/2021
Current state
02/01/2021
Latest data shows 64% of London is moving around. It had been
02/12/2020 steadily increasing since restrictions started to ease from the third
02/11/2020 lockdown at the start of this year.
02/10/2020
02/09/2020 Assessment
02/08/2020 The data shows that Londoners are moving around broadly the
same as last month (66%) and is roughly three times the figure
02/07/2020
during the last lockdown imposed in January. This is unsurprising
02/06/2020 considering the ‘stay at home’ rule has now been lifted and
02/05/2020 restrictions have eased.
02/04/2020
02/03/2020 Why is it an important indicator for residential?
0% 20% 40% 60% 80% 100% This is an indication of mobility or how 'active' Londoners are. The
housing market is unlikely to return to full strength until a sense of
% of London moving 'normality' returns.
Source: Citymapper *not including car journeys
AUGUST 2021 10 WHAT
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TOWATCH
WATCHIN
IN2021
2021Economic - PMI
65
It’s a slither
down
55
45
Current state
The PMI decreased to 59 in July 2021, down from 62 in the
35 previous month. However, it remains higher than the figures seen
at the start of 2020 (53).
25 Assessment
The PMI is higher than the critical ‘50-point’ which is consistent
with a growing economy. This increase suggests continued
15 economic recovery in Q4 2021.
Why is it an important indicator for residential?
5 PMI is a leading indictor of GDP (economic growth). A reading
over 50 is consistent with a growing economy. Housing market
May-18
May-21
Jul-17
Jan-18
Jul-18
Jan-19
May-19
Jul-19
Jan-20
May-20
Jul-20
Jan-21
Jul-21
Nov-19
Sep-17
Sep-18
Sep-19
Sep-20
Nov-17
Mar-18
Nov-18
Mar-19
Mar-20
Nov-20
Mar-21
activity is highly correlated with a growing economy.
Source: Macrobond
AUGUST 2021 11 WHAT
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TOWATCH
WATCHIN
IN2021
2021Economic – Inflation rate
3.0 It’s a step up
2.5
2.0
Current state
The CPI increased by 2.4% in the 12 months to June 2021, up
from 2.1% in May. The largest upward contributions to the
1.5
%
change were from housing and household services and transport.
This was partly offset by a downward contribution from health.
1.0
Assessment
Inflation is now higher than the 2% target and above the level
seen at the start of 2020 (1.8%).
0.5
Why is it an important indicator for residential?
Low inflation can be a sign of economic problems because it is
0 often associated with weakness in the economy. When
Jun-18
Apr-19
Apr-20
Apr-21
Jun-19
Jun-20
Jun-21
Aug-18
Aug-19
Aug-20
Oct-18
Oct-19
Feb-20
Oct-20
Dec-18
Dec-19
Dec-20
Feb-19
Feb-21
unemployment is high or consumer confidence low, people and
businesses may be less willing to make investments and spend on
consumption, this lower demand keeps them from bidding
up prices.
Source: ONS
AUGUST 2021 12 WHAT
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TOWATCH
WATCHIN
IN2021
2021Economic – GDP
25.0 It’s a step up
20.0
15.0
10.0
5.0 Current state
ONS estimates economic growth increased by 22.2% year-on-
0.0
%
year in Q2 2021. This was a 4.8% increase from Q1 2021. ONS
monthly estimates showed GDP grew by 1.0% in June 2021, the
-5.0 fifth consecutive month of increase.
-10.0
Assessment
-15.0 Tough restrictions led to a fall in GDP in the first quarter of 2021.
However, Q2 saw a strong consumer-led recovery with the
-20.0 relaxation of restrictions and successful vaccine rollout. Looking
ahead, we expect continued strong recovery of GDP in Q3 2021.
-25.0
2008 Q2
2008 Q4
2009 Q2
2009 Q4
2010 Q2
2010 Q4
2011 Q2
2011 Q4
2012 Q2
2012 Q4
2013 Q2
2013 Q4
2014 Q2
2014 Q4
2015 Q2
2015 Q4
2016 Q2
2016 Q4
2017 Q2
2017 Q4
2018 Q2
2018 Q4
2019 Q2
2019 Q4
2020 Q2
2020 Q4
2021 Q2
Why is it an important indicator for residential?
GDP is the key measure of economic activity and housing market
activity follows trends in GDP closely.
Source: ONS
AUGUST 2021 13 WHAT
WHATTO
TOWATCH
WATCHIN
IN2021
2021Residential – Bricks
200 Stalemate
180
160
140
Current state
120
The latest statistics show there were 164m provisional brick
Millions
deliveries in June 2021. This is no change from a month prior
100 but up 11% from the 10-year average. Deliveries in June 2021
were almost eight times the lows during the first lockdown
80 period.
60
Assessment
40 Brick deliveries are 4% above the 12-month average of 158m.
20 Why is it an important indicator for residential?
In weaker conditions house builders will scale down
0 development, which will reduce the need for brick deliveries.
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
Jun-18
Jun-19
Jun-20
Jun-21
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Dec-20
More brick deliveries therefore suggest a recovering market.
Source: ONS
AUGUST 2021 14 WHAT
WHATTO
TOWATCH
WATCHIN
IN2021
2021Residential – Enquiries and instructions
50 It’s a slither
40
down
30
20
10
Net balance
Current state
0 In July 2021, buyer enquiries fell into negative territory at -9%
and instructions fell to -46%, down from -35% in June 2021. This
-10
shows demand continues to outstrip supply.
-20
Assessment
-30 The data shows that housing market momentum eased in July,
which partly reflects the tapering of the stamp duty holiday at the
-40
end of June. However, we expect short-term activity to remain
broadly stable.
-50
-60 Why is it an important indicator for residential?
Buyer enquires Instructions This data measures underlying activity in the market and can be
used to predict future sales levels.
Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21
Source: RICS
AUGUST 2021 15 WHAT
WHATTO
TOWATCH
WATCHIN
IN2021
2021Residential – Availability of secured credit
50 It’s a step up
40
30
20
10 Current state
Net balance
The Bank of England Q2 2021 Credit report suggested the
0 availability of secured credit will increase in Q3 2021, with a
reading of 16.5%, albeit down from the previous quarter. The
-10 number of mortgage products rose by 148 from July to August,
to a total of 4,660.
-20
Assessment
-30 Lenders are now offering more high LTV mortgages, partly
bolstered by the 95% mortgage guarantee scheme, and
-40 confidence appears to be returning to this part of the market.
Furthermore, the competitive lending market continues to push
-50 rates down for consumers.
Q2 2007
Q4 2007
Q2 2008
Q4 2008
Q2 2009
Q4 2009
Q2 2010
Q4 2010
Q2 2011
Q4 2011
Q2 2012
Q4 2012
Q2 2013
Q4 2013
Q2 2014
Q4 2014
Q2 2015
Q4 2015
Q2 2016
Q4 2016
Q2 2017
Q4 2017
Q2 2018
Q4 2018
Q2 2019
Q4 2019
Q2 2020
Q4 2020
Q2 2021
Why is it an important indicator for residential?
Without access to sufficient credit, potential buyers are unable to
fund a home purchase.
Source: Bank of England
AUGUST 2021 16 WHAT
WHATTO
TOWATCH
WATCHIN
IN2021
2021Residential - Mortgage approvals
120,000
It’s a slither
100,000
down
80,000
Current state
There were just over 81,000 mortgage approvals in June 2021.
60,000 This is down 6% from a month prior, however, it is double the
level compared with June 2020 when the UK’s initial lockdown
resulted in unusually low levels of activity.
40,000
Assessment
The slight easing of momentum in June is partly due to buyers
20,000 running out of time to take advantage of the tax holiday for
homes up to £500,000. However, we expect demand to remain
strong in the short-term, particularly as buyers can still benefit
0 from the stamp duty holiday for homes up to £250,000.
Jun-17
Jun-18
Jun-19
Jun-20
Jun-21
Oct-19
Oct-17
Oct-18
Oct-20
Feb-17
Feb-18
Feb-19
Feb-20
Feb-21
Why is it an important indicator for residential?
A mortgage approval is granted when a property sale has been
agreed. Although not all approvals convert to a mortgage, the
Mortgage approvals for house purchase 10-year average majority do. As a result, it is a key leading indicator of activity
and will be the first concrete evidence the market has turned.
Source: Bank of England
AUGUST 2021 17 WHAT
WHATTO
TOWATCH
WATCHIN
IN2021
2021Residential – UK residential sales
200,000 It’s a step up
180,000
160,000
140,000
120,000 Current state
Sales totalled 198,240 in June 2021, according to HMRC
100,000
provisional estimates. This is more than three times the level seen
in June 2020 and 74% higher than the previous month.
80,000
60,000 Assessment
The surge in transactions in June was expected and reflects
40,000 buyers seeking completion before the stamp duty holiday began
to taper off at the end of June. We expect transaction volumes to
20,000 remain relatively robust in the near-term as buyers can still take
advantage of the tax break for homes up to £250,000.
0
Jun-17
Jun-18
Jun-19
Jun-20
Jun-21
Sep-17
Sep-18
Sep-19
Sep-20
Mar-18
Mar-19
Mar-20
Mar-21
Dec-17
Dec-18
Dec-19
Dec-20
Why is it an important indicator for residential?
This data measures actual activity in the market and can be used
to predict future sales levels.
Sales, UK Average post GFC
Source: HMRC
AUGUST 2021 18 WHAT
WHATTO
TOWATCH
WATCHIN
IN2021
2021Sales Volumes (Q2 2021 vs Q2 2020)
Residential – London new build sales
INNER OUTER
LONDON LONDON
-52% +54%
Current state
New build sales volumes in inner London have decreased 52% in
Q2 2021 (compared to Q2 2020), according to Molior.
Conversely, sales volumes in outer London increased 54% over
the same period. Notably, Q2 2020 experienced unusually low
levels of transactions due to the pandemic. When comparing Q2
2021 with the same period of 2019, sales in inner London were
down 58% and up 34% in outer London.
Assessment
London sales volumes have not followed the same trajectory as
the rest of the UK. The shift in lifestyle and home preferences
caused by the pandemic has meant buyers are searching further
out of central London. Buyers are seeking larger homes with a
garden and an extra bedroom to accommodate more home
working.
Source: Molior Why is it an important indicator for residential?
This data measures actual activity in the market and can be used
AUGUST 2021 19 to predict future sales levels. WHAT
WHATTOTOWATCH
WATCHIN IN2021
2021Residential – UK house prices
£270,000 14%
It’s a step up
£260,000 12%
£250,000 10%
£240,000 8% Current state
The average house price in the UK was just under £266,000 in
June 2021. Prices increased 13.2% year-on-year and 4.5% from
£230,000 6% a month prior.
£220,000 4% Assessment
June 2021 saw the strongest annual growth in house prices since
£210,000 2% November 2004. We expect price growth to remain strong in the
short-term, however, whether price growth is sustained will
depend largely on the extent and pace of the wider economic
£200,000 0% recovery.
Apr-18
Apr-19
Apr-20
Apr-21
Jun-18
Jun-19
Jun-20
Jun-21
Aug-18
Aug-19
Aug-20
Oct-18
Oct-19
Oct-20
Dec-18
Dec-19
Dec-20
Feb-18
Feb-19
Feb-20
Feb-21
Why is it an important indicator for residential?
This data reflects the prices paid for properties sold. Consistently
falling prices indicate a significant market downturn.
Average House Price, LHS Year % Change
Source: ONS
AUGUST 2021 20 WHAT
WHATTO
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WATCHIN
IN2021
2021Average Price (June 2021 vs June 2020)
Residential – London house prices
INNER OUTER
LONDON LONDON
+2.5% +7.8%
Current state
The average house price in London was £510,299 in June 2021,
a 6.3% year-on-year increase. Annual price growth in outer
London outpaced inner London at 7.8% and 2.5%, respectively.
Assessment
Changing preferences caused by the pandemic has meant
London price growth consistently trails behind the UK overall.
Annual house price growth in London is the weakest out of all
the regions in the UK and growth is broadly strongest in the outer
boroughs. This is largely down to affordability constraints and
increased demand for more space. The North West and Wales
recorded the highest annual growth at 18.6% and 16.7%,
respectively.
Why is it an important indicator for residential?
This data reflects the prices paid for properties sold. Consistently
Source: ONS falling prices indicate a significant market downturn.
AUGUST 2021 21 WHAT
WHATTO
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WATCHIN
IN2021
2021Residential - Price and sales expectations
60
It’s a step up
40
20
0
Net balance
Current state
Price expectations increased in July 2021 to +30%, from +29%
-20 in June. Sales expectations increased into positive territory at
+5%, up from -4%.
-40
Assessment
-60 The data show surveyors are optimistic about the housing market
over the next three months. Prices are expected to stay on the
-80 upward trend as demand continues to outstrip supply.
-100 Why is it an important indicator for residential?
Jul-16
Jul-17
Jul-18
Jul-19
Jul-20
Jul-21
Apr-17
Apr-18
Apr-19
Apr-20
Apr-21
Oct-16
Oct-17
Oct-18
Oct-19
Oct-20
Jan-17
Jan-18
Jan-19
Jan-20
Jan-21
This data reflects surveyors’ views and is therefore a good
reflection of underlying activity.
Price expecations Sales expecations
Source: RICS
AUGUST 2021 22 WHAT
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WATCHIN
IN2021
2021Contacts and disclaimer
CBRE disclaimer 2021
Jennet Siebrits Luke Mills CBRE Limited confirms that information contained
Executive Director, Managing Director, herein, including projections, has been obtained from
Head of Research Residential sources believed to be reliable. While we do not doubt
their accuracy, we have not verified them and make no
jen.siebrits@cbre.com luke.mills@cbre.com guarantee, warranty or representation about them. It is
your responsibility to confirm independently their
+44 20 7182 2066 +44 20 7182 2949 accuracy and completeness. This information is
presented exclusively for use by CBRE clients and
professionals and all rights to be material are reserved
and cannot be reproduced without prior written
permission of the CBRE Research.
Please visit our website at cbre.com
Julien Mills Rebecca Hunt
Head of New Homes Residential
Research Analyst Residential
julien.mills@cbre.com
To learn more about CBRE Research, or to access
+44 20 7182 2679 rebecca.hunt@cbre.com
additional research reports, please visit the Global
+44 20 7182 2000 Research Gateway at cbre.co.uk/research-and-reports
or visit our Residential website at
https://www.cbreresidential.com/uk/en-GB
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