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House Price Index

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Overview

With the onset of the traditional moving season, new sellers coming to market ignored any pre-election jitters and economic woes and pushed up their average asking prices by 2.6% (£5,898) this month. This robust increase contrasts sharply with the 0.1% rise the month before, reflecting a very patchy housing market that is struggling to find a consistent and cohesive direction this spring. At a macro level, the stock shortages that have underpinned prices are easing slightly, with the current run-rate of properties coming to market now recovering to levels last seen before the Lehman Brothers collapse in September 2008. At a micro level, estate agents report wide variances in supply-and-demand dynamics between neighbouring patches, and also within property types in the same area. The affluence of purchasers seeking to buy in a particular location remains the decisive factor.

Miles Shipside, commercial director of Rightmove comments: “Rarer property types in desirable locations are achieving record prices. For ‘location, location, location’ you can also read ‘cash, cash, cash’. Conversely, in areas where buyers have less access to cash or mortgage finance, or there is an over-supply of a certain property type, then sellers are having to price much more aggressively to secure a sale. There is increasing divergence between these different markets, with agents reporting some pockets where a couple of viewings find a cash-rich buyer, whereas a few miles down the road it’s taking over 20 viewings to achieve a sale”.

This month’s index measures the asking prices of 129,898 properties that estate agents have put on the market, meaning the weekly average has now been over 25,000 for the last two months. This is the longest period that supply has been sustained above 25,000 properties per week since August 2008. If buyer demand was keeping pace, we would expect this to result in a fall in average unsold estate agency stock. However, at present unsold stock is still increasing, with a month on month rise from 65 to 68. This is the highest level of choice enjoyed by prospective buyers since October of last year. The market is approaching a pivotal point in terms of supply and demand. There is nearly always a time-lag in spring as the number of properties for sale initially increases as fresh stock comes to market, and then falls back again as sales pick up. Lack of property for sale and the consequent restriction in choice, especially in popular areas, have been supporting prices during the recession and the early stages of the recovery. Wherever over-supply occurs, this market will be especially prone to downward price pressure. This increased choice for potential buyers, combined with the impact of the inevitable post-election austerity measures on personal finances, could lead to some of the price gains seen so far being whittled away by price falls later in the year in all but the most popular areas. Currently average national asking prices are still 6% higher than a year ago.

Miles Shipside comments: “With weather disruptions out of the way, more sellers are coming to market and they appear to be ignoring the uncertainties facing potential buyers. Prices are up, but so is choice, and the two are not happy bedfellows in the longer term. This year more than ever the traditional spring seller window is a price sensitive one, if asking prices continue to rise, all but the most popular locations are building themselves up for some of the gains to be lost later in the year”.

While we forecast overall property supply will continue to rise, this is likely to be concentrated in areas where economic fundamentals deliver forced sales combined with muted demand due to poor mortgageability of prospective buyers. Cash-rich investors looking to profit from others’ distress may decide to hold off purchase until they see where prices fall back the most and the best returns are available. Owner-occupier buyers with more restrictive and demanding location requirements may find their choice remains limited as sellers of more desirable properties sit on their hands until at least spring 2011. For those who can get a suitable mortgage, acting this spring, especially before interest rates start to rise, may prove to be a wise option. Activity on Rightmove indicates that prospective buyers are busy searching through the extra choice for the best buys that suit their needs, with the number of property pages viewed this Easter up by 35% on last year. Stamp duty changes in the Budget may have contributed to increased activity, with those potential first-time buyers previously deterred by paying 1% stamp duty over £125,000 now expanding their search criteria into higher price brackets.

Shipside adds: “Many sellers will be potential buyers as well, and it appears as though they are trying to get higher prices for their property - some are hoping to skip a rung on the housing ladder and others are simply trying to ensure that the finances stack up for their move. They need to be careful that they do not miss the spring window by being over-ambitious, and should scrutinise their pricing wearing their hat of a buyer instead of as a seller”.

The run up to the election appears to be having little effect on the housing market. However, some opinion polls suggest that a hung Parliament is still a real possibility, and the uncertainty over who will form the next government may continue for much longer than usual. We would normally expect the “feel-good factor” to cause an increase in housing market activity once the new government is confirmed, but this would be negated by a period of post-election political turbulence.

Miles Shipside comments: “As far as the housing market is concerned, any election result is better than no result. In the event of a hung Parliament, the market is likely to go into suspended animation until greater certainty emerges.”

The market is approaching a pivotal point in terms of supply and demand. There is nearly always a time-lag in spring as the number of properties for sale initially increases as fresh stock comes to market, and then falls back again as sales pick up....
As far as the housing market is concerned, any election result is better than no result. In the event of a hung Parliament, the market is likely to go into suspended animation until greater certainty emerges....
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