Assetz® News - After Slow Summer, Expect Autumn Pick Up for Housing Market

After Slow Summer, Expect Autumn Pick Up for Housing Market

12th September 2005 |

Expectations for house prices drop
Propertyfinder.com’s August survey found that 48% of respondents expect house prices to rise over the next twelve months, while 45% expect prices to fall. Overall, house-hunters expect prices to be relatively stable over the next twelve months, falling just 1.6%.
Confidence has slipped slightly since July for a number of reasons. Quite apart from the usual summer holiday apathy, poorer economic news is affecting sentiment. Increasing numbers of respondents cited high levels of borrowing and increasing unemployment to explain their greater caution.
Significantly, optimism on interest rate cuts has diminished since base rates were reduced to 4.5%, and the percentage of respondents expecting interest rates to rise has risen sharply this month from 14% to 23%.
However, overall confidence remains comfortably above the average for the last year. House-hunter confidence leads transaction volumes by 3-4 months. This suggests that housing market activity can continue to recover from its very weak levels in early 2005, without necessarily meaning prices will rise.
Jim Buckle, managing director of propertyfinder.com explains: ‘The dip in housing market confidence this month which we predicted in July results from negative economic news, such as the rise in oil prices and the weak retail market, and has also been affected by the seasonal slowdown that occurs at the height of the summer, when people are on holiday and supremely uninterested in the stress of moving home. Mervyn King warned that consumers should not rely on further interest rate cuts, and this message seems to have reached house-hunters’ ears. Despite his comments, we believe a further cut in interest rates is likely at the end of the year or beginning of next year and that will further stimulate a recovery in the market.’

Gap between buyer and seller expectations increases
Buyers’ and sellers’ expectations for house prices continued to move more closely in parallel than at the start of the year. The gap widened very slightly in August reflecting both the seasonal lack of buyer interest and also the weaker economic climate, but continues to signify improved conditions for the market compared to the beginning of 2005. Disparities between buyer and seller opinions cause problems for the market, as both groups hold out for prices the other sees as unrealistic. When the gap was widest, the volume of housing transactions reached a low point.

Housing market experiences typical Summer slowdown
This month indicators of housing market activity demonstrated the effects of the slowdown typical during the Summer holiday period. The number of weeks that properties have spent on the market rose by 17% from 10.7 weeks in July to 12.5 in August. The number of buyers beginning to look for properties during 8the month fell from 26.3% to 20.7%.
Buyers in August took advantage of the slowdown and lack of interest in the housing market, making offers on average 6.4% below the asking price, compared to 3.5% below the asking price in July. Similarly, during August sellers said that they were prepared to accept offers 4.9% below their asking price (compared to 3.5% below in July).
Data on actual transactions in the market continue to follow the pattern established by confidence levels, and fell slightly in July to 137,000 (latest available data from National Statistics). This dip is explained the low point market confidence reached in April (as well as some summer holiday disruption to housing completions). The lag between changes in confidence and transactions is the result of the time taken by homebuyers to actually find and purchase a property, a process that typically takes three to four months.
Jim Buckle concludes: ‘We have not changed our view that a modest revival in the housing market is set for the autumn, although recent economic events have caused us to moderate our view of the magnitude of the likely upturn. With house-hunters expecting broad price stability in the housing market, there is no disincentive for people to move house and with interest rates having peaked, there is no need to fear sharp increases in mortgage costs.’