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| MONDAY 12TH SEPTEMBER 2005 |
 AUTUMN
REVIVAL PREDICTED AFTER SUMMER APATHY
After a slow summer, the housing market is set for a modest
autumn pick-up as fears that priced will drop recedes.
Around 48% of people now expect property prices to rise over the coming
12 months, compared with 45% who think prices will fall, according to
Propertyfinder.com.
Overall househunters 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.
Househunter 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 explained: "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 househunters’ 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 buyers’ and sellers’ 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 concluded: "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 househunters 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."
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