House Price Index

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Overview

This economic downturn continues to surprise, with a third consecutive record for new sellers’ asking prices. The national average asking price for June is now £246,235, an increase of £2,476 (+1.0%) over the previous month. However, while Rightmove’s index shows sellers’ prices are now 2% up on August 2007, the month before the UK economy faced the run on Northern Rock, they have fallen considerably in real terms when compared to retail price inflation over the same period. In spite of sellers’ current record price aspirations, in real terms they are still an average of 13% lower. London is the only region where there has been an inflation-busting increase over the same five year timescale, with asking prices 3% ahead of the national Retail Price Index (RPI). The new asking price record is driven by a more robust market in the south of the country, with new regional price records set in London and the South East this month.

Miles Shipside, director at Rightmove comments: “While the national average price of property coming to market has set new records in each of the last three months, sellers should not break out the bunting in celebration until they have done their homework. It remains a very local market ruled by property style and location, and a few minutes study will reveal whether your property is hot or not. Agents report a two-tier market where those who can afford to price realistically are selling, while those who are equity-poor are struggling to sell as they often have to price up to make any prospect of a move viable. The traditionally more active spring window is closing and a summer of sporting distractions underway. Cutting your asking price to be cheaper than your competition and promoting your selling points better will be the key to avoid being an also-ran in the race to sell”.

Record new seller prices have also been set in two out of the four regions in the southern half of the country, continuing the seemingly counter-intuitive credit-crunch trend of suitable property supply failing to satisfy demand. Previous recessions have been driven by measures taken to combat inflation, with soaring interest rates and repossession numbers. Those high numbers of forced sales helped to provide liquidity in the housing market, something the current downturn lacks. The result is a very patchy market characterised by reduced transaction volumes, with low interest rates helping to keep people in their homes, exacerbating the supply shortage in locations of high demand. At £477,440, London is up 1.7% (£8,126) on the previous average asking price high set last month, while the South East is 0.5% (£1,662) above its previous record set in October 2011. The South West too is only some £300 off an all-time high. Removing London’s record-breaking performance from the dataset demonstrates the extent of its impact on the national average. Stripped of all the capital’s properties, the average asking price across the rest of the country would still be more than 5% adrift of its peak recorded nearly five years ago in August 2007.

Shipside comments: “These strong rises in the south of the country have helped to push the national average asking price into new record territory. In these uncertain economic times, lenders feel safer to lend to those with a cash-cushion, and those sitting on that cash often feel more comfortable with it invested in tangible assets, including bricks and mortar. The better properties in the better areas remain in short supply, giving sellers of sought-after stock, and their agents, the confidence to come to market at a higher price. The right property within commuting or holiday bolt-hole distance of the capital seems to be an attractive each-way bet with the potential to be both recession-proof and offer good odds to keep pace with, or even outstrip, inflation”.

The new record national average asking price adds some gloss to a mixed regional picture, and it should also be set in context with the comparatively high level of retail price inflation during the economic downturn. The property price peak in real terms was in August 2007, which correlates with the problems faced by Northern Rock. Taking inflation (as measured by RPI) into account over this five year period, property coming to market this month is more than 13% cheaper in real terms. Greater London is the only region where the average asking price has outpaced inflation and is 3% ahead over the period. The other nine regions of England and Wales have seen double-digit percentage falls in new seller asking prices when adjusted for inflation, with Wales the worst performing where real prices are now 24% lower than August 2007.

Shipside adds: “Property has a track record of being a hedge against inflation and continues to be seen as such. However, whilst it has fared better than many investments in the last five years, it has failed to hold its own in real terms in most parts of the country. This reduction in real house prices would be great news for home-movers if their wages had kept pace with inflation and the return of mass-market mortgage finance was just around the corner. However, the reality is wage freezes, rising costs of living, and continuing tight mortgage funding have squeezed affordability for many buyers. From a seller perspective, in spite of new record prices, most are still worse off in real terms than they would have been selling five years ago. The more property-affluent Londoners are the exception, and in the capital the more common rule of thumb is that the rich have got richer”.

While the volume of property coming to market remains constrained compared to pre-credit-crunch norms, existing and potential sellers should note that there are early signs of increased competition with a late spring rush of fresh sellers. The weekly run-rate of 29,394 new sellers in the three weeks prior to the disruption of the Diamond Jubilee break was the highest recorded for two years. It remains to be seen whether this increase in supply is sustained over the summer months, and exceeds demand at a time when buyers are traditionally more scarce.

Shipside observes: “With the likelihood of the Greek election outcome causing further economic uncertainty, and buyers more interested in viewing sport rather than property, it is likely we have seen the last of record asking prices for the remainder of 2012. With more sellers belatedly coming out of the woodwork, and fewer summer buyers on the register, those who are serious about selling will have to do their homework and mark their prices down if their property fails to tick all the boxes.”

the new record national average asking price adds some gloss to a mixed regional picture, and it should also be set in context with the comparatively high level of retail price inflation during the economic downturn...
this reduction in real house prices would be great news for home-movers if their wages had kept pace with inflation and the return of mass-market mortgage finance was just around the corner...
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