Property Confidence Crisis

Posted on: 15 April 2008 by Gareth Hargreaves

Confidence in the UK housing market drops to a historical low.

78.5 percent more property surveyors reported a fall than a rise in house prices in March, an increase from 65.7 percent in February, according to RICS' (Royal Institution of Chartered Surveyors) UK housing market survey published on 15th April 2008.

The RICS house price balance dropped for the eighth month in succession. This figure has exceeded the historical low of June 1990, when 64.5 percent more Chartered Surveyors reported a fall in house prices and is now the lowest figure since the survey began in 1978. 

However, a lack of houses for sale is still preventing significant price falls despite rising stock levels.

The regional picture is even more depressed. In the East Midlands 89 percent more Chartered Surveyors reported a fall than a rise in house prices and a net 86 percent reported falls in East Anglia. Scotland still remains the only UK region with the net balance of surveyors reporting price rises. Four percent more Chartered Surveyors reported a rise than fall down from 6 to 10 percent.

Demand continued to weaken as new buyers' enquiries fell further. 49 percent more Chartered Surveyors reported a fall than a rise in new buyer enquiries, up from 39 percent in January.

Many would-be-buyers are either struggling to raise the necessary finance to precipitate a move or are exercising caution in the light of current economic uncertainty. With the official interest rate cuts not being passed on to the high street there is little expectation that demand will improve in the near term. It is clear that price falls are being driven by the inability of many to secure finance rather than an influx of supply into the market.

The net balance of surveyors reporting new instructions to sell property fell further into negative territory, as the pressure to sell continues to be light given the still strong employment picture.

The ratio of completed sales compared to the stock of unsold property on the market fell to 24.8 percent, down from 26.3 percent, and is the lowest number since September 1996. Both sales expectations and price expectations fell. The net balance of surveyors expecting prices to rise is at the all time low of -73 percent. Sales expectations moved back into negative territory, with many Chartered Surveyors turning pessimistic in the face of continuing financial turmoil.

"Sentiment is at a very low ebb and will continue to remain depressed while the economy suffers from this unique liquidity blight," says RICS spokesman, Jeremy Leaf. "The slowdown in prices is directly attributable to a lack of available finance which has hit demand."

"However, until new supply increases dramatically a significant crash remains unlikely. The next six months will be a crucial period for homeowners but would-be buyers with larger deposits may see this market as an opportunity to acquire property in areas to which they could not previously aspire as recently as the end of 2007."

According to the Halifax House Price Index, released on 8th April, house prices fell by 2.5% in March. Prices in 2008 Quarter 1 were 1 percent lower than in 2007 Quarter 4. House prices in March were 1.1% higher than a year earlier.

"Overall, we expect there to be a modest fall in UK house prices this year," says Martin Ellis, chief economist.

"Any declines, however, should be viewed in the context of the significant price rises over recent years. The average UK price has risen by £120,860 during the past decade from £70,696 to £191,556; an increase of 171%."

"Sound economic fundamentals are supporting house prices. A strong labour market, low interest rates and a shortage of new houses underpin housing valuations. Our research shows that the labour market is the key driver of the housing market. Employment is at a record high and unemployment continues to fall."

Halifax expect there to be a modest rise in unemployment later in the year, but the scale of the increase is unlikely to cause widespread difficulties for households.

In Britain there are 11.8 million households with a mortgage and 6.3 million households owning their homes outright. In addition, nearly one in four of properties bought each year are bought with cash.

Buyers have been putting down bigger deposits than in previous cycles. 82 percent of all new borrowers put down a deposit of more than 10 percent of the house price during the final quarter of 2007. By contrast, 56 percent of new borrowers put down a deposit of more than 10 percent in 1989 and 1990.

Total house sales have been much lower in the last few years compared with the height of the 1980s boom. There were, on average, 1.15 million transactions in England & Wales in the last three years (2005-2007). This was a third - 560,000 - lower than in 1988 when there were an estimated 1.71 million transactions.

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