Confidence returning to housing market

The research revealed that 52% of househunters are expecting house prices to rise, compared to only 30% in December. 43% of respondents now expect house prices to fall compared to 66% in December. Confidence in the housing market is now approaching levels not seen since last July, when 57% of respondents expected prices to rise.

On average, househunters expect national house prices to drop by only 0.6%, whereas in December this figure was closer to 8%. Most regions now expect prices to rise, with East Anglia experiencing the largest increase in optimism. This month sees the return of North/South divide as the North is the most optimistic region for the first time since last June, with househunters expecting price increases of 5.8%. Their Southern counterparts on the other hand, remain relatively gloomy.

Amongst those who do expect prices to rise there is the feeling that interest rates may have already peaked, with 27% of optimists citing falling interest rates as a catalyst for rising house prices in 2005. 32% of the house price optimists also said economic growth explained their optimism (steadily rising from 26% in December).

42.4% of respondents linked the expected rise in values to a surge in the number of people moving into their region. This was particularly the case for those in East Anglia and Yorkshire. Amongst the house-price pessimists the majority (91.8%) expect property values to fall, believing that they are currently too high relative to incomes.

Jim Buckle, Managing director of and commented: “Contrary to popular belief, the housing marketing is not heading for a crash. Last month the seeds of optimism were sown as confidence in the housing market began to increase. This optimism has now begun to germinate with 52% of househunters expecting house prices to rise over the next 12 months.

"Housing market activity normally picks up at the start of the year and even at this early juncture requests for property details via our website have increased by around 80% since last month. As the spring approaches I would expect to see a gradual improvement in househunter confidence, provided interest rates remain steady.”

The multiples of household income that househunters are prepared to pay for their new homes has expanded from a low point of 4.4X last month to 4.8x in January. Buyers in the lower and higher income brackets in particular have increased the extent to which they are looking to borrow (See chart 2). The level of mortgage that buyers are prepared to take on has also increased to 65% of the value of the home they are looking for, compared to 56% in December.

The percentage of first time buyers visiting the propertyfinder website has dropped for the second month in a row, slipping to 30.4% from 36.3% in December.

Jim Buckle comments: “This makes poor reading for young househunters, although government plans to introduce initiatives such as low cost starter homes may shed a ray of hope for some would-be first-time-buyers.

“Despite the fact that confidence has improved for the second month in a row, househunters remain fairly cautious. Many people still feel that prices have further to fall and almost half of the pessimists believe that borrowing levels are still too high relative to incomes. However, buyers are now prepared to take on higher mortgages, perhaps reflecting an overall consensus that the MPC will either hold fire or will drop interest rates, thereby making debt more manageable. Confidence remains fragile and continued stability in interest rates is key for the housing market in 2005. We would like to see a period of prices holding steady, with neither rampant growth or dramatic corrections. "