25 February 2008Early signs of life in housing market
First increase in demand since start of the Credit Crunch although prices set to remain under pressure in short term
February saw the fifth house price fall in a row, but there were signs of a modest improvement in demand over the month.
Average prices were down by 0.2% with the annual rate of growth slipping to +1.4%, the lowest level since April 2006.
Signs of improving demand...
Despite the continued weakness in underlying prices, February's survey showed signs of improving demand with the first increase in new buyer registrations since last summer. Firming demand and an increase in the number of sales agreed, explain the small improvement in the month on month rate of growth.
London and the South East registered the largest increases in buyer registrations - up 13% and 10% respectively - but compared to the same period in previous years, growth over February was much lower.
But there's still a way to go...
The increase in new buyers this month is well down on levels expected for the start of the spring market. Over the last 3 years, the increase in new buyers registering with agents each February has averaged 25%, almost 3 times higher than the increase seen over February 2008. The upward pressure on prices in previous years has been supported by the growth in the supply of housing for sale being lower than the increase in demand. Supply over the last 3 years for example increased by an average of 16% compared to the average 25% growth in demand. This year the supply of housing for sale has increased broadly in line with demand - hence the weakness in pricing levels.
Some of areas have seen an increase in housing supply...
In some areas of the country such as the East, North West and Yorkshire and Humberside and Wales the supply of housing for sale has increased more than demand - these are areas where pricing is likely to remain under pressure in the short term.
Looking ahead...
While the latest survey reports prices down across a third of the country we expect the extent of these falls to slow over the coming months as demand continues to improve on the back of lower mortgage rates and a modest improvement in confidence.