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House Price Index

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Overview

June sees Rightmove record the sixth consecutive monthly rise in new sellers’ average asking prices, up by 0.6%. At the halfway point of 2011 our price statistics are following a very similar pattern to last year, with overall gains of 8.1% (£17,984) this year compared to 7.4% (£16,303) in the first half of 2010. With similar market conditions we predict that the second half of 2011 will continue to mirror 2010. We therefore forecast that new sellers’ prices will fall by up to 7% in the next six months as underlying market weakness again checks the impetus normally seen in the first half of the year.

Miles Shipside, director of Rightmove comments: “2011 looks like a case of déjà vu, with the tide of housing needs yet again failing to breach the levée of restricted mortgage funding. As the seasonal surge in demand begins to fall back, new sellers’ asking prices will also have to ebb away. With mortgage approvals stuck at half the normal level, the number of sellers who can find a buyer is likely to be reduced by a similar proportion. Sellers will need to paddle hard to catch a buyer with funding, or they will find themselves well and truly grounded and unable to move home”.

The average asking price for a property coming to market this month is £240,394, the highest figure Rightmove has ever recorded in the month of June. One of the peculiarities of this downturn is that prices in some parts of the country are at all-time highs, as there have been stock shortages in many areas where mortgageable buyers and cash buyers want to live. Overall we see a stagnant market, with mortgage levels at half those of 2007 yet a majority of sellers not having to sell urgently. This has given the market a deceptive sense of stability, though it is an uneasy balance that could be tipped into a price surge if and when mortgage finance returns, or significant price falls should the number of forced sellers increase. Apart from a few blips, this position has remained the same for the past four years and looks set to continue in the absence of further major shocks to the banking system or wider economy. However, we expect there to be some modest downwards price pressure in the second half of this year, as average unsold stock levels per estate agency branch are continuing to rise in spite of the number of properties coming to market remaining subdued. New sellers in June came to market at an average weekly run rate of 28,542, some 14% lower than in the same month last year. Unsold stock per branch was an average of 69 at the beginning of the year and has risen every month since, with each estate agency branch now parading an average of 78 properties. This increase in stock levels gives more bargaining power to potential buyers, who remain active as demonstrated by record search activity on Rightmove in May, up 4% on the previous record of January this year.

Shipside comments: “Increasing stock levels are a clear indication of buyer appetite failing to keep pace with the number of sellers who are showing some hunger to sell. However, with most sellers able to take their time and wait for an offer that matches their expectations, we are seeing the highest ever asking prices for the month of June. High levels of unsold stock and record asking prices cannot remain happy bedfellows for long, so we expect to see this romp away from reality to reverse itself in the second half of the year as the over-supply of property and under-supply of mortgages reassert themselves and exert downwards price pressure. This could be good news for buyers who have been sitting on the sidelines.”

The number of buyers able to proceed is limited by the availability of mortgage finance and the conditions attached to its release. The Bank of England mortgage approval figures for April were the lowest recorded in the year to date, at 45,166 (seasonally adjusted). However, there are signs of some slight easing of lending criteria, with estate agents reporting more loans being advertised for a 5% deposit, although only for the most creditworthy borrowers. Lenders will be encouraged to be in a more positive frame of mind should arrears continue to improve.

The latest figures from the Council of Mortgage Lenders show that arrears of 2.5% or more of the outstanding mortgage have fallen from 1.65% to 1.47% of borrowers between Q1 2010 and Q1 2011, with a consequent fall in the number of repossessions. At 9,100 in the first quarter of 2011, repossessions are some 10% lower than the same period in 2010. With interest rates expected to stay at or close to record lows for the remainder of this year, and recent positive news on unemployment numbers, the number of forced sellers looks likely to remain subdued which in turn will help to underpin prices. We therefore anticipate that the second half of 2011 will be more positive than in 2010, and while we expect new sellers to have to drop their prices over the remainder of the year, we now believe that they will end 2011 slightly higher than they began it.

We have thus revised our December 2010 forecast of falls in the range of 2% to 5% and now predict an increase for 2011 of up to 2% in national average asking prices. As always, local conditions vary, with wildly different activity levels and price changes. Areas with deposit-rich buyers and limited property availability are seeing active markets with prices holding steady or rising. These are more concentrated in the south and east of the country, and those regions stand out in this month’s index. All the southern regions show rises month-on-month, with London setting a new record, and the South East the highest average asking price for three years. In contrast, all but one of the six northern regions show monthly falls, and three of them have fallen year-on-year.

Shipside concludes: “The ‘wealth gap’ between the south and the north is widening, which shows itself in rising prices in the south this month, with prices going backwards in the north. However, wealthier locations in the north are definitely bucking this trend with brisk activity, and poorer areas in the south are struggling just as much as similar areas in the north. Earning power and the ability to raise a decent deposit are the deciding factors, rather than your location on a map”.

With similar market conditions we predict that the second half of 2011 will continue to mirror 2010...
We expect there to be some modest downwards price pressure in the second half of this year, as average unsold stock levels per estate agency branch are continuing to rise in spite of the number of properties coming to market remaining subdued...
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