Weak demand keeps houses prices down

Hometrack believes that prices are set to remain under downward pressure in the near term but a tightening in supply means that by the end of 2011 prices are forecast to fall by -2%.

Demand for housing dropped by -4.3% in November - the fifth monthly fall in a row and the largest single monthly decline since January 2009.

This decline is largely seasonal but the scale of the fall has been exacerbated by weaker consumer sentiment fuelled by spending cuts and renewed concerns over the economy. All this at a time when expectations are that house prices are set to fall further.

Hometrack believes the supply side dynamics of the market are set to change and this will influence the trajectory of prices over the next 6-12 months. As the outlook has become uncertain, so the supply of homes coming to the market has begun to fall.

The number of properties for sale fell by -0.4% in November. This is the first time in 9 months that the survey has registered a fall in supply. A continued reduction in the supply of homes for sale seems inevitable in the coming months as vendors either reduce asking prices or withdraw property from the market. Hometrack expects this to act as a support to pricing levels over the second part of 2011.

Despite a decline in supply the weakness in demand continues to put downward pressure on prices. November registered the fifth consecutive monthly decline in house prices, according to Hometrack - down -0.8% compared to a -0.9% fall in October.

Commenting on the latest monthly national housing survey, Richard Donnell, director of research at Hometrack, said: “The seasonal slowdown in the housing market has kicked in a month early with demand for housing falling at the fastest rate for 20 months according to the latest housing market survey.

“Agents and surveyors across 2,300 postcodes reported that demand for housing declined by -4.3% over November, the largest monthly fall since January 2009. Concerns over the economic outlook on the back of recent spending cuts together with widespread expectations that house prices are set for a period of re-trenchment, are driving the continued weakness in demand. It is inevitable that this trend will continue as we move into the New Year from both a seasonal and sentiment perspective.

“Despite the decline in demand over recent months house prices have not fallen to the same degree as they did in 2008 and 2009. Overall prices were down -0.8% in November following a -0.9% decline in October. Today, unlike then, prices are falling off a lower base.

“The reality is that in the months ahead vendors will either need to reduce prices or withdraw property from the market. In the near term we expect demand to remain weak and this will continue to put downward pressure on prices in the coming months. Over the course of 2011 we expect average house prices to decline by -2%.”