Assetz® News - House prices have started growing again

House prices have started growing again - you heard it here first

18th February 2008 |

The Rightmove house price index jumped this morning by 3.2% in a single month. Some are bound to say this is surprising but they weren't watching the small print and the chart in last month's Rightmove press release. It was fairly obvious this was going to happen and I explain this further down. House prices (asking prices) up £7,500 in a month - a sign of some strength to come later this year although not at this level every month clearly.

I have commented a few times over the last month that there was some evidence that house prices had started to move upwards again. Bear in mind that UK residential property prices are on average only 1.5% below the highest price they reached in 2007. That's according to the average of all house price indices in the UK that we record in our House Price Watch tracker.

If you're looking for evidence that UK housing is one of the most stable forms of investment available just compare this minor wobble to the prime UK commercial property market or the stock market as per my previous blog a couple of weeks ago.

In January, Rightmove issued data and a chart showing a severe upturn in vendor sentiment at the beginning of January. It showed a sharp upturn in asking prices from people putting their properties up for sale on this website. Regular readers of this blog will know that Rightmove represents what is known as a leading indicator - it shows asking prices, not agreed mortgages as per some house price indices and not the actual land registry data. Data recorded on the Rightmove index will not necessarily become the data on the land registry later on due to some discounting taking place but the trend in prices on Rightmove is very useful for predicting what will happen with the other price indices in a few months time. The Rightmove index overshot in the summer partly due to HIPs and also some people being rather over enthusiastic about pricing for houses that they rushed on to the market to beat the deadline. The February index announced today is another piece of data to suggest that January may have been the beginning of renewed growth in the property market but there is plenty more data to suggest this may well be happening and here are some quotes from some of the other market commentators :

Rightmove January : "Early January shows signs of market recovery despite time on the market and stock levels hitting record highs in December. Active start to New Year as buyer interest spurred by lower prices and falling interest rates. There is clear evidence of a marked increase in activity and average prices immediately after the New Year. In addition, much of the monthly fall is due to the final HIPs deadline for smaller homes attracting more cheap properties to the market. The January housing market therefore seems to be showing signs of its usual upturn, after several months of sellers readjusting their prices. Estate agents report a positive upturn in new movers and activity levels. The high number of potential homemovers looking is borne out by the number of visits to Rightmove, up nearly 20% on the first two weeks of last year. Last Monday was the busiest day on record, with over a million visits, viewing 20.9 million pages. The growth of households and ongoing desire to get onto the property ladder underpins demand, and there are sellers keen to sell."

Incidentally, according to Rightmove, national asking prices by property type to the end of January 2008 make interesting reading, flats and apartments are up by just as much (4.3%) as semidetached houses and more than detached houses and only a fraction under terraced houses growth rates.

Nationwide : "The drop in demand was particularly acute among first-time buyers, who found it increasingly difficult to raise the deposits needed to climb onto the housing ladder. After reaching a low point in September of last year, the buyer enquiries measure saw a modest recovery between October and December. This is not altogether surprising, as some potential buyers who had been priced out of the market may have recently had their interest spurred by expectations of lower interest rates in 2008 and the possibility of their bargaining position improving in looser market conditions. As the year progresses, a key factor to watch will be how much pent-up demand returns to explore the market, and how much of this is translated into actual housing transactions."

Halifax : "Sound economic fundamentals will support house prices in 2008. The economy is in good health; employment levels are high. The UK economy recorded its 62nd successive quarter of GDP growth in 2007 Q4, extending the longest running period of unbroken growth on record. The number of people in employment – a key driver of housing demand - has risen by 263,000 over the past year earlier to a record 29.36 million. There has, however, been a slowing in the rate of decline of new buyer enquiries during the past three months, suggesting that the downturn in activity may be beginning to stabilise."

Also Birmingham and Midshires confirmed last month that the average rent in the UK rose to £698 per month in 2007 from £617 in 2006, an increase of 13.1% in just one year for the UK as a whole.

And finally in all good negative market periods you get a moment when everybody gives up and is their most gloomy - I think we've just seen that with the RICS surveyors who are at their gloomiest ever which is one of the strongest buying signals you could see if you want to buy at a good price. For those of you not familiar with this theory you really want to be buying when the lowest prices are available and people being gloomiest generally coincides with this moment. Now is therefore quite likely to be one of the best times to buy from a motivated seller and that is the reason we're getting such good discounts off property at present, but as we commented before, this buying opportunity could be over by the summer as prices start to rise firmly.

So when we say house prices have started growing again this is very much a case of having spotted key market data and activity that you would expect to see preceding the rate of growth in house prices going up again. We got it right in July 2005 ( http://investors.assetz.co.uk/blog/?postid=7 )and perhaps we're right again - we will see for sure over the next two or three months but by then some of the very best opportunities will probably have gone.

Stuart Law