28th September 2010
The downbeat findings have emerged in the latest monthly survey of the house market by property information company Hometrack. It reveals that the average price of a home fell by 0.4% over September while demand for housing dropped for the third month running, easing -2.9% over the month.
In a further indication of just how much the supply and demand are diverging, Hometrack found that over the last three months the number of homes coming on the market grew 7.2% but that the number of prospective buyers registering with estate agents fell 6.5%. Over the last six months, the supply of homes for sale has grown 16% while demand has fallen 1.6%.
Meanwhile the proportion of sellers securing the asking price eased to 93.2% from the recent high of 94.3% in June.
While prices fell across all regions, the South West posted the largest fall, down 0.6%, followed South East and East Anglia. The decline in demand has been strongest in southern England, which experienced the largest price drops in the last three months with prices in London down 1.1%, and 1% in southeast England overall.
Anectodal evidence from agents indicates not only fewer purchasers but that those purchasers are more choosy and cautious. The return to a buyer's market ‘seems inevitable' in the coming months, says Hometrack.
Richard Donnell, director of research at Hometrack, says the downbeat survey provides further confirmation of an ‘ongoing re-pricing process which began six months ago in early Spring and is set to continue into early 2011'.
Over the rest of 2011, he anticipates agents will start to focus on re-pricing property on books to a level where sales volumes can be maintained.
Donnell says that talk of a ‘double dip', with the implication being that the market will see double-digit house price falls, is overdone despite the weak outlook for demand. He reckons a surge in the supply of homes for sale should slow and help limit price declines in the next year.
Sacha Sadan, UK equity fund manager at Gartmore, is not overly surprised by Hometrack's findings, pointing out that house market data has been weak for the last few weeks.
One factor that Sadan believes has been at play recently and most likely affected Hometrack's September snap shot is the new government abolishing the costly home information packs (Hips) within days of taking power. That alone could have led to a slight increase in properties coming to market though Sadan stresses the effect would be limited and clearly just a ‘one-off'.
Sadan believes a more important factor weighing on sentiment is concern over the economy and government spending cuts – more precisely uncertainty over next month's comprehensive spending review (CSR).
At the moment, the CSR is proving a big drag as making big decisions is difficult, he says, adding: "I think once we know the details of the CSR, the outlook for the house market will be a little clearer. We need the certainty that will provide before moving forward with some clarity."
While Hometrack highlights economic worries and government spending cuts as major factors weighing on the market, further downward pressure could result from moves being considered by regulators to curtail mortgage lending.
The Financial Services Authority is currently consulting on ways to prevent lending to those unable to clearly show ability to repay. But the Council of Mortgage Lenders points to the FSA's own admission that that any such restrictions will lead to ‘significant' falls in house prices.
Last week Michael Coogan, director general of the CML, called on the FSA to re-evaluate its proposal, adding: "We do not want to sleepwalk into a housing finance market which is
sustainable but meets almost nobody's aspirations because it is so risk-averse."