RICS has produced a useful housing indicator, shown in today’s chart. The ‘sales to stock ratio’ could show us when house prices will stabilise. It’s calculated by dividing the number of sales by the number of unsold properties. As sales drop, unsold stock goes up and this pushes the ratio down.
The housing market is still in the doldrums, with a low
sales-to-stock ratio
Source: RICS
Rather than any specific level, we would want to see this figure rise higher - and sustain that level, before housing looks a safe bet again. You can see that this time last year (red circle) the ratio was just under 40. Since then, the market has been in freefall.
Don’t be fooled by the tiny recent upswing - this is only because the number of unsold properties has fallen harder than sales have. The crunch has been pushing landlords to let their properties rather than struggle to sell. This reduces the ‘stock’ figure, but it still means those properties remain unsold. They’ve just shifted onto the rental market. False sense of security, that...
Look how close the ratio currently is to December’s all-time low of 12.8 (blue circle). Homebuyers aren’t going to return to the market while they’re still unable to get mortgages. And sales will remain dismal until the economy starts to recover.
If the sales-to-stock ratio is anything to go by, the housing market is far from stabilising this year.
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