What Is the RICS House Price Balance?
The term RICS House Price Balance refers to a housing survey published by the Royal Institute of Chartered Surveyors (RICS) in the United Kingdom. The RICS House Price Balance is conducted monthly and is based on opinions about housing price trends from a sample of property surveyors based in the U.K. It is included in the RICS monthly Housing Market Survey. The survey is considered a leading indicator of the country's housing market and the overall economy as a whole.
- The RICS House Price Balance is a housing survey published by the Royal Institute of Chartered Surveyors in the United Kingdom.
- The survey is a leading indicator of the expected monthly change in national house prices.
- The survey's figure is calculated as the proportion of surveyors reporting a rise in housing prices minus the proportion reporting a fall in prices.
- Economists and investors use the RICS House Price Balance to predict how much money consumers will spend.
- A positive net balance indicates price increases while a negative net balance implies price decreases are on the horizon.
Understanding the RICS House Price Balance
The Royal Institution of Chartered Surveyors (RICS) is a globally recognized professional organization based in the United Kingdom. The group's work ranges from land management and development, construction, real estate, and infrastructure. It is made up of more than 134,000 professionals who gather data and provide insight into the national housing market, including the Housing Price Balance.
The housing price balance figure is calculated as the proportion of surveyors reporting a rise in housing prices minus the proportion reporting a fall in prices. The national survey is made up of 19 housing-related questions. Some of the areas covered include:
- The average price changes for rentals and home sales for the last three months
- The expected price changes over the next three-month, 12-month, and five-year periods
- The changes in the inventory of unsold homes
- How surveyors feel about current price levels
A positive net balance means more surveyors see more price increases, signaling a robust housing market. A negative net balance, though, implies that more surveyors see more housing price decreases, signaling a fragile housing market.
Let's assume that in a survey of 300 surveyors, 150 reported that prices went up, 50 reported no change, and 100 reported that prices went down. Proportionally, 50% of surveyors reported higher prices, and 33% reported lower prices, giving a net house price balance of +17. This simple example shows that the net positive balance means prices are on the rise, leading to a robust housing market.
Foreign exchange traders pay close attention to the reported figure as it often triggers immediate fluctuations in the valuation of the British pound (GBP), relative to other currencies.
As noted above, the RICS Housing Price Balance is a monthly survey that reflects the strength of the U.K. housing market. The media, economists, and investors often pay a lot of attention to the figures RICS publishes. Since two-thirds of Brits are homeowners, the RICS House Price Balance gives us a good idea of how much money circulates in the British economy.
Several different factors influence the price of real estate—economic growth is one of them. When people are confident about becoming wealthier in the future, they are more likely to want to upgrade their homes and outbid each other on bigger properties. Other important property valuation drivers include population growth, the supply of new housing, and interest rates. When central banks lower interest rates, it becomes cheaper to borrow money from a bank, stimulating demand for real estate.
Keep in mind that the housing market is closely related to consumer spending, which is a significant driver of gross domestic product (GDP). When real estate prices rise, homeowners become more confident and are more likely to borrow against the value of homes. The opposite tends to occur when prices go down. Spending drops and mortgages risk defaulting, putting the banking system and entire economy at risk.
Real-World Example of the RICS House Price Balance
The RICS House Price Balance has churned out negative net balances for many years. But that changed in September 2019. September is normally a month that sparks an upward tick in housing market activity. The headline price balance registered a reading of -2 in September 2019, a slight improvement from August and July. This tells us that real estate prices were recovering but still remained in negative territory at that time.
Prices continued to trend upwards. According to the June 2021 survey (which was published in July) surveyors determined that demand and supplies were dwindling. This, in turn, led to an increase in prices all over the United Kingdom, especially in Yorkshire & the Humber, Northern Ireland, and Wales. Demand also rose for the rental market for the month of June.