Market Turnover Trend Questions Real Recovery

Home.co.uk highlights that rising prices alone do not necessarily translate into real recovery.

Today’s market is experiencing restricted supply and rising prices. It is vital for anyone involved in the home buying and selling process (e.g. solicitors, mortgage lenders, builders and estate agents) to understand the overall flow of properties moving through the market.

During the boom times of 2007, the Home Market Turnover Indicator (HMTI) was a staggering 10,000 properties per day but, when the financial crisis hit, the flow fell drastically. Since the dark days of early 2010, the HMTI managed to recover to the 4,000 per day level later that year. However, somewhat alarmingly, the overall trend over the last three years has been downward as stock levels have fallen faster than marketing times. Currently standing at 2,761 properties a day, the turnover is 14% lower than it was in June 2012.

Despite a seasonal upturn, such a trend questions whether the current price rises are really a sign of a stable recovery in the sales market. In fact, the HMTI is at an all-time low for the time of year, indicating that the market in England and Wales has downsized by around 75% since the peak in 2007. If stock levels remain restricted (continued economic uncertainty and a booming rental sector suggest that they will), then we expect the HMTI to continue its downward trend.

Based on current average prices, at the current low rate of turnover, Home.co.uk estimates that there is £656 million of property value flowing through the market per day. This is completely dwarfed by the turnover in July 2007, the highest recorded HMTI, when close to £2.5 billion moved through the market on a daily basis.

Doug Shephard, director at Home.co.uk, commented:

“Rising property values are less significant if sales activity is stagnant or falling. Hence, it is vital not to overlook the pulse of the sales market. Translating the daily rates of turnover into money flows helps the observer gain a genuine perspective on the health and wealth of the marketplace. To consider that the flow of wealth at the pre-crisis peak was 277% more than today’s rates is very sobering news for any party involved in the buying and selling of residential property.

It is not just about cash flows between financial institutions. Lower transaction rates have a very negative impact on local economies. Vendors spend money preparing their homes, buyers spend money post-purchase and both sides hire professional services. A US study looking at how much money is injected directly into the economy puts the figure at around 17% of the property value.*

Looking ahead, the real test for each local market is: when will vendors begin to return in significant volume? The answer very much depends on the fortunes of the wider UK economy.”

Sources: Home.co.uk Asking Price Index, * RCF Economic and Financial Consulting, Inc. March 31, 2011