Following the release of the States of Guernsey’s Q3 2024 residential property prices bulletin, Richard Hemans, IoD Guernsey’s lead on economics, commented: ‘It may be too early and brave to identify the bottom of the latest housing market cycle, but the latest property statistics suggest that it may be starting to recover after reaching its trough in Q2 2024, with both prices and transactions increasing quarter on quarter. However, the most insightful element of the latest bulletin is the inclusion of new data on the supply of housing in the island, which shows that simply not enough housing is being created to meet demand.
‘Local market property prices decreased by 6% year on year in Q3 2024 and have now been declining since Q3 2023, when prices were 6% higher than now. They did increase quarter on quarter nonetheless, and when the large quarterly decrease from Q3 2023 drops out of the calculations in Q4 2024, it is likely that the price change for the full year of 2024 will be flat to a small decline. It is also important to remember that local market house prices are 40% higher than they were 5 years ago.
‘Q3 2024 transactions increased quarter on quarter and against the same quarter in 2023. The four quarter rolling average number of transactions fell by 9%, which was a significant improvement on the 25% decline reported in Q2 2024. The transaction trend has been improving since the first quarter of 2023 and it now seems that the number of transactions for the full year will be around the same level as 2023 when it previously looked like they would struggle to exceed 500.
‘The open market recorded a 1% increase in prices, and they are 43% higher than five years ago. The number of four-quarter rolling open market transactions declined by 32% against last year and are 33% lower than their pre-pandemic level. The new Labour government and its first budget could lead to higher transactions in the coming quarters.
‘The price of rentals continued to increase, rising by 7.6%, and the average rental price is now more than £2,000 a month for the first time. Rental prices have increased by nearly 48% over the last five years, underlining the shortage of properties and strong demand for them, driven by high levels of immigration. The change in the price since 2009 of renting a property is now outstripping that of purchasing a property. The pace of the increases in rent will keep inflation high as it is such a large component of the inflation basket. Rent remains relatively unaffordable for those who are not property owners, consuming a painful 55% of average earnings and leaving little money available for other expenditure. Rental yields of 3.9% underline how expensive rental properties are, which makes investment in the sector unattractive unless there are further capital gains that would put further pressure on tenants. It is worth noting, however, that yields have improved over the last year when they were 3.5%, thanks to increasing rent and falling house prices.
‘There is good news in that the affordability ratio for house purchases to earnings has fallen to 14.1 times, which is still high but markedly better than the 15.4 recorded last year. This is good news for buyers and illustrates the impact of increasing earnings and falling prices. The discounts that sellers are accepting for their property was lower in the last quarter, indicating they are not having to discount so much if they want to sell their property. Sellers are also prepared to wait longer to sell their property, which suggests they are relaxed and there is no financial distress. Indeed, the average loan to value for the last 12 months is consistent with the prior year at 76% and lower than the exuberant days of 2022 when it reached 80%.
‘The data on the supply of new housing neatly illustrates why Guernsey house prices will continue to remain high and strong in the context of full employment, robust earnings, falling interest rates and a growing population driven by positive net migration. Only 61 new housing units have been created over the last 12 months and just 14 in the calendar year to date. Given the States target of 300 new housing units a year to satisfy demand, this imbalance is likely to drive prices higher again in 2025, hold back the economy, keep inflation at elevated levels and make life harder for islanders.’