The property market is “close to the trough” with a sustained period of recovery expected in the near future, research from Atelier has suggested.
The research, ‘Past Performance, Points to Future Potential’, dissected each factor – such as house prices, interest rates, and demand and supply – and their influence on the market.
It found that, while the UK is currently experiencing a period of decelerating growth in house prices, a number of historic trends suggest this will be a brief period of decline followed by a prolonged period of recovery.
Atelier CEO, Chris Gardner, said: “In the UK, private enterprise delivers 60 per cent of new housing – precisely because these developers are agile and can respond quickly to shifts in the marketplace.
“It is important for developers, in particular, to be agile enough to overcome short-term market volatility while progressing forward with a clear, long-term strategy.
“Property is a long-term asset class, and with the data now available to us, we are positive about the future, and we are here to provide finance solutions to professional property developers ready to act.”
House prices
The first trend examined by the report was house prices and looked at how the current state of prices matches up with previous historical contexts.
The report argued the market is at the end of the sixth period of decelerating growth and is currently entering a third phase of decline, which is defined when house prices fall for more than two months on an annualised basis.
This commenced after a 3.96 per cent decrease was recorded by the Office for National Statistics between July and August 2023.
However, the analysis illustrates this decline will likely be brief, and followed by a sharp and prolonged period of recovery due to similar trends in the past.
“There have only been two periods of decline in absolute terms, 1992-93 and 2008-9. These periods were brief and were followed by sharp and prolonged recovery,” the report stated.
Inflation
The report also examined inflation, acknowledging that, for many, the higher interest rates throughout 2023 are a “big change” from a 10-year cycle of extremely low rates.
However, it pointed out that, when compared with historic rates prior to 2009, today’s rates are “put into perspective”.
With this historical context, Atelier suggested that interest rates are “likely to stabilise” for a prolonged period at close to their lowest market determined level.
Atelier chief financial officer, Paul Silva, said: “It’s likely when the first cut does materialise, it will be greeted with optimism, increasing confidence amongst investors and borrowers.”
Supply and demand
Lastly, the report looked at supply and demand in the property market, showing that, despite ambitions to deliver 300,000 new residential units a year, the actual figure has been closer to around 200,000.
Additionally, quarterly housing statistics are “well under” the 75,000 per quarter estimate required by the government as a target in their 2019 manifesto.
On the other hand, the report found a relatively high level of demand which it predicted to be increasing over the near future.
It pointed out that, between 2018 and 2028, according to the Office for National Statistics, the number of households in England is projected to grow from 23.2mn to 24.8mn.
This represents an increase of 7.1 per cent and equates to an average of 164,000 additional households a year.
Atelier director of portfolio management, Rebecca Nutt, said: “We agree that demand is likely to remain strong.
“In fact, based on our conversations with developers around the country, we would go further and say that there is always demand for the right product.”
The research said it was clear the property market is currently sitting at the bottom of the cycle.
“Market conditions are beginning to recover, and we find ourselves close to the trough, which will be followed by a sustained period of recovering,” it stated.
It also stated that supply constraints in terms of new builds are likely to have a positive impact on pricing.
“History tells us that the bounce back will be significant. Now is the time for SME developers to build up their pipeline,” the report stated.
tom.dunstan@ft.com
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