Housing market shows more signs of recovery

The latest report from the Royal Institution of Chartered Surveyors (RICS) was released this week. The report has proven to be a superb indicator of trends in the housing market that do not show up elsewhere for some time.

At first glance, the latest reading seems unambiguous. The RICS headline index, which is produced by taking the percentage number of surveyors who said house prices were up, and subtracting the percentage number who said they were down, rose to its highest level since September 2007 last month. The index is still negative – standing at minus 18.1. But its score rose to 25.7 points in the month, so another month like that and it’s back into positive territory. Three months ago the index stood at minus 72.5, so that’s a massive improvement.

There are a multitude of other scores

that make up the entire report, such as an index tracking enquiries from new buyers. The balance of surveyors who said enquiries were up hit plus-67 per cent. If this index keeps rising at the pace seen recently, in a few months’ time there won’t be any surveyors who are not seeing a rise in enquiries.

Perhaps the most meaningful RICS index is the one that compares sales over the last three months with the number of properties for sale on agents’ books. Or, in other words, inventory to sales. The ratio of sales to stock now stands at 22.3, meaning that 22.3 per cent of all properties on estate agents’ books were sold over the last three months. The index has risen sharply in recent months, and the June score is the highest reading since March 2008.

Although sales are rising, they are still tiny. The latest RICS figures have sales per surveyor at 12.7 over three months. This is the highest level since last September, but it is still 15.3 per cent below the levels seen a year ago. But even a year ago, sales were low. Back in 2007, sales per surveyor were approaching 30, and earlier in this decade they were topping 40.

The housing market is picking up, but only because the very low levels of demand are slightly better than the very low levels of supply. This could change quite abruptly.

Michael Baxter is an economist at Defaqto