The annual rate of house price inflation fell from 7% to 4.9%, the lowest in almost a decade. We anticipate a 0% year-on-year rate of increase by July with little movement upwards until buyer affordability improves.
Since the end of the property boom there has been a gradual decrease in annual house
price inflation. There have been no sharp corrections, resulting in a ‘soft landing’ on prices.
However with too few sellers and estate agents lowering prices by enough to make
properties more affordable to more buyers, the result has been a ‘hard landing’ in volumes
of property transactions.
These are only likely to recover if buyer affordability improves through lower prices, rising
wages, or falling interest rates.
- Prices are still higher for buyers than a year ago and have been resistant to falls over
the most recent six months - with a further £608 added to the average asking price this
month. This resistance to sharp price drops looks likely to continue given the lack of
urgency amongst most sellers to sell. Fewer sellers are under pressure to sell due to
high employment levels and seem able to cope with the burden of higher interest rates
on their mortgage repayments- though partly to the detriment of retail spending in the
High Street which has seen a drop in spending.
- Average annual wage rises (currently at 4.7%) are starting to overtake house price
inflation. Although this increases buyers’ affordability, it is unlikely to have little impact
on the housing market this year.
- As a result, transaction levels in 2005 are heading for the lowest levels since 1995
unless there is an early cut in interest rates to boost affordability and buyer sentiment.
However, as the Bank of Englands main focus is to manage inflationary pressures in the
wider economy, sellers and estate agents must play their part in pricing realistically to
help to improve buyer affordability and market conditions.
For full details see www.righmove.co.uk
