Faltering demand and rising supply driving the slowdown

The slowdown in the housing market continues to gain momentum according to the latest national housing survey from Hometrack, the Housing Intelligence Business. The monthly rate of house price growth halved over June with average prices rising by +0.3% compared to +0.6% in May and a recent high of 0.8% in March 2007. The annual rate of house price growth also slowed to 6.4% (from 6.7% in May), a trend that is set to continue over the second half of the year on the back of rising levels of supply and weaker demand in the face of higher interest rates.

The slowdown is being driven by a mis-match between supply and demand with price rises over June limited to 28% of the country – down from 44% in April. For the fourth month in a row the growth in the supply of homes coming to the market (+12.4%) exceeded the growth in new buyers (+5%) with the volume of homes coming to the market doubling over June. "This growth in supply is primarily a result of homeowners putting their properties on the market in advance of the now delayed introduction of Home Information Packs. It is also partly explained by buyers looking to take advantage of the recent strong market conditions and cashing in on the back of relatively 'full' asking prices," explains Richard Donnell, Hometrack's Director of Research.

"The growth in supply comes at a time when demand is faltering on the back of recent increases in interest rates and widespread fears of further rate rises to come," adds Donnell. "With much of the new supply coming to the market from discretionary sellers looking to achieve close to the full asking price, it seems likely that the average time to sell property will increase in the months ahead with a slowdown in sales volumes and a switch to a 'buyers' market."

The buoyancy of the London market over the last 18 months has been a major driver of the headline rate of growth. Now, however, London is witnessing a clear turnaround in market conditions which is supporting the current slowdown. The London region saw the largest decline in demand over June (-3.5%) compared to a national average of +5% and an increase in supply (10.9%) - the highest recorded by the survey for over 2 years (February 2005). Despite this, prices in London still rose by 0.7% over the month, down from 1.3% in May, driven largely by above average growth in the equity fuelled prime housing markets of central and south west London.

Elsewhere, the year on year rate of growth remains subdued with price rises of less then 2.5% in six out of 10 regions, primarily those away from southern England where previous interest rate rises have already impacted on the market.

Donnell again, "The ratcheting up of interest rates since summer last year has finally caught up with the London market which has been the engine for house price growth over the last 12 months. Housing market sentiment appears to be turning with buyers likely to become increasingly price sensitive over the second half of the year."

"As a result there are likely to be areas of the market where asking prices see limited price falls, primarily in those locations which have seen the highest levels of growth in recent months. Secondary markets are also likely to under-perform as increasingly cautious buyers think twice about buying in ‘second choice’ locations. Despite these localised differentials in performance, we still expect the headline year on year rate of growth to slow to 4% by the year end with growth remaining in low single digits well into 2008," he concludes.

Ends

For further information please contact:

Richard Donnell
Director of Research
Hometrack
Office: 0845 013 2360
Mobile: 07725 822567
rdonnell@hometrack.co.uk

Alison Blease
Head of PR
Office: 0845 013 2272
Mobile: 07769 677825

Notes to editors:

Hometrack Index and National Housing Survey

The Hometrack index is based on a unique housing database that details the latest market information across more than 2,300 postcode districts in England and Wales. The index is compiled from over 6,000 individual reports, which are received from up to 3,500 estate agents. The survey collects market evidence from across the country not just where housing transactions happen to be taking place (where other indices tend to collect their evidence).

Hometrack Data Systems

Hometrack is the UK's leading housing intelligence business. We have a proven track record of working with clients to deliver innovative, on-line products which provide unique information to inform enhanced decision making and improved risk analysis across a range of markets. Our success is based on strong business insight, market leading technology and unique data. The company has two principal business areas:

Lending Solutions

Hometrack is the market leading provider of automated valuations of residential property and risk based analytics to the financial services industry. Hometrack's Automated Valuation Model is used by lenders to inform individual lending decisions as well as having major applications in the securitisation and capital market arenas. Hometrack also deliver leading edge risk modelling and stress testing of mortgage portfolios for Basel and capital adequacy purposes.

Housing Market Analytics

The residential sector is the UK's largest asset class yet in terms of analysis and information to help inform decisions it is far from transparent. The Housing Market Analytics team are at the forefront of developing on-line systems and reporting products that deliver vital market intelligence for use in a range of markets. Hometrack's market leading Housing Intelligence System is being used by local and regional government to inform policy and strategy in the housing and planning areas. Developers and investors are using the information and analysis in the system for demand modelling, scheme appraisals, planning negotiations and strategy development.