Housing market finding its feet

Despite a slew of negative indicators on the wider UK economy in recent weeks, confidence in the housing market has held up on the back of a sharp recovery in May. In June, 51% of respondents predicted that the housing market would rise over the next twelve months compared to 54% in May.

The leveling out of confidence is explained by househunters’ increasing confidence that interest rates are now on the way down. Now, only 17% of respondents are expecting the Monetary Policy Committee to increase base rates, half the proportion in May and less than a third of the proportion in April. In early 2004, the high balance of househunters expecting interest rates to rise presaged the sharp slowdown in the housing market. Optimism on interest rates is now setting the stage for a period of stability in the housing market.

It says the differing expectations of buyers and sellers is an excellent guide, not so much to the outlook for prices, but to the number of house transactions taking place in the housing market.

As overall confidence plummeted and the housing market began to weaken, buyers went on strike. For as long as there is a wide gap between the two groups’ opinions, fewer homes will change hands. The gap continued to narrow in June as buyers’ and sellers’ expectations moved more closely into line. This bodes well for the market.

The number of enquiries delivered by propertyfinder.com to estate agents (either by e-mail or by potential buyers clicking through to the estate agents’ own websites) has remained strong during May and June in contrast to normal seasonal trends which see a drop-off after Easter. It says this suggests that the decline in market activity has bottomed out and that there will be a step-up in demand once the school holidays are over.

Jim Buckle, managing director of propertyfinder.com comments: "We continue to believe that the housing market is beginning to stabilise. Househunter confidence has proved a reliable indicator of housing market activity as our survey was the first index to spot the slowdown in May last year. We may now be approaching a more positive turning point.

"Sentiment is very fragile and interest rates are clearly the most significant factor affecting househunters’ expectations. Buyers have been fearful of a “double whammy” of falling prices and rising interest rates which hurt so badly at the end of the 1980s boom. However, buyers are now confident that interest rates have peaked.

"There is no justification for the Monetary Policy Committee to maintain interest rates at 4.75%, and without a cut in the near future, confidence could begin to evaporate. When a cut materialises people will actually have the confidence to move again."