House Price Index

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New sellers coming to market have dropped their average asking prices for the third consecutive month. These price falls demonstrate the impact of the summer’s sporting distractions and highlight a lack of strength in a housing market that was not sufficiently robust to withstand them. New sellers dropped their asking price aspirations by 0.6% (-£1,402) compared with August, and by 4.6% (-£11,377) in the last quarter. September 14th marked the fifth anniversary of the run on Northern Rock and the visible beginnings of the credit-crunch in the UK. Uncannily, the average price of newly marketed property is virtually the same as September 2007, though an overall ‘prices unchanged’ headline masks some of the extreme changes that have occurred in different sectors of the UK housing market over the last five years.

Miles Shipside, housing market analyst at Rightmove comments: “Summer sellers have had some very stiff competition, not only from competing sellers chopping their prices but also from the Olympics extravaganza which has been more compelling for many than viewing property. Property coming to market is £11,000 cheaper than it was three months ago and there will be many hoping that this gives a boost to the autumn selling season if buyers leave their starting blocks in a hurry and join the traditional rush to see in the festive season in a new home”.

September 2011 saw sellers increase their prices by 0.7%, so this year’s fall of 0.6% is a marked turnaround in pricing tactics, especially with estate agents keen to attract fresh stock to showcase after a summer holiday slowdown exaggerated by the Olympics and Paralympics. This year’s extended summer selling-recess has perhaps delayed the onset of any autumn flurry which might have pushed up sellers’ pricing confidence. The net result is that prices are now virtually the same as September last year, up by just 0.7% (£1,719), and market conditions remain very similar.

Shipside observes: “2012’s extended summer holiday period has left new sellers’ asking prices almost the same as a year ago and, intriguingly, five years ago too. In truth, the state of the housing market is little different now to this time last year, and prices have stagnated as neither buyers or sellers have been forced to change their behaviours in sufficient quantities to stimulate greater activity. However, back in 2007 few would have believed that house prices would still be the same in five years’ time. This would have been in the context of the previous five year period to 2007 seeing an average rise of 55%. Equally hard to predict would be the extreme changes the housing market has undergone. The global squeeze in the credit markets has seriously affected the man on the street’s access to mortgage financing, permanently hampering their ability to finance their journey onto and up the housing ladder”.

While the average new sellers’ asking price in the UK has remained virtually the same since September 2007, market conditions are much changed. They are patchy, localised, and vary markedly for the many different buyer and seller segments. Within these there are groups of winners and losers for whom there have been massive changes in fortunes, expectations, and aspirations. Credit-crunch winners include:

- Home-owners in London and the south: New seller prices in London have outperformed every other region over the last five years, up by 18.7%. The remaining regions in the south (East Anglia, South East and South West) are all in positive territory. To put this into context, England and Wales as a whole has fallen by 0.1% over the same period, with all of the northern regions in negative territory. Shipside notes: “Demand has held up better in the south and has outstripped supply in many localities. In London in particular, property owners have seen their housing assets increase in value and been clear ‘credit-crunch winners’”.

- The cash-rich: Cash-rich potential buyers or equity-rich home-owners are able to put down the more substantial deposits required by lenders to buy or trade up. Shipside observes: “Many of the equity-blessed are situated in the south, and their markets are closest to returning to pre-credit-crunch supply. The number of sellers willing or able to come to market in London, the South East, East Anglia and the South West are the highest of all regions in England, recovering to within 14% to 20% of 2007 levels. New seller numbers in other regions are down by an average of 26%”.

Buy-to-let investors: Canny investors who took advantage of falls in capital values are now enjoying attractive returns, compounded by the benefits of rising rents and comparatively low mortgage repayments. Shipside comments: “Some buy-to-let investors who bought property in the run up to the credit-crunch have seen a fall in capital values, but many have been rescued by the rise in rents and a reliable income stream driven by high tenant demand”.

Credit-crunch losers include:

- Trapped renters: Over half of existing renters state they would like to buy but cannot afford to. Shipside observes: “The inability of the majority of tenants to move out of the rented sector leaves fewer vacancies for the fresh crop of households being formed, who are also struggling to buy. This demand pushes up rents, so tenants lose by not being able to get onto the housing ladder and end up paying more for living where they do not wish to be”.

- Mortgage prisoners: People in negative equity or with insufficient equity to fund their next move. Shipside adds: “With property prices in the doldrums, the equity of many existing home-owners has been eroded and, with lenders demanding higher deposits, those affected are unable to escape from their restrictive mortgage predicament”.

- Downtrodden down-traders: Those at the upper-levels of the housing ladder looking to trade down due to changing housing needs or a desire to release equity for retirement are finding they outnumber those willing or able to trade up. Shipside comments: “Those trading down are feeling the pressure of the ‘new market’. They had the upper-hand for years, selling to a seemingly endless supply of trader-uppers. Down-traders became accustomed to seeing their equity and potential retirement pot grow, and the current outlook is less rosy”.

- Cash-strapped north: While there remain active sectors in the northern half of the UK, the new market norm punishes those with more restricted access to cash. Traditionally there is less access to equity in the north. Shipside concludes: “The challenges for the market are considerable in many parts of the country, but they are even greater in the north with its residents having not recently benefitted from the same equity gains of their southern counterparts”.

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House Price Index