31 July 06 Signs of housing slowdown emerging - weaker growth over second half of 2006 expected
House prices rose by 0.6% over July taking year on year growth to 3.2% according to the latest national house price survey from Hometrack, the housing information business. Whilst the strength of the market in London continues to flatter the headline results the July survey provides clear evidence that levels of house price growth and market activity are starting to slow, a trend which is expected to continue over the rest of the summer and into the autumn.
The latest Hometrack survey shows a 0.9% decline in the volume of new buyers registering with agents over July, the first decline in buyer numbers this year. This is a normal seasonal trend but one that has arrived a month later than in previous years. "The growth in prices over July may seem at odds with the decline in demand" comments Richard Donnell, Director of Research. "However, against the background of a limited supply of housing for sale, agents are still reporting continued upward pressure on prices, especially in southern England.
The survey also shows how the extent of house price rises across the country has declined over the last month, reversing the upward trend of the last nine months. In June agents reported monthly price rises across 42% of the country, whilst in July this fell back to 31% - see chart 2, page 3. Stripping out the impact of London and the South East the Hometrack survey shows that prices rose across just 19% of the remainder of country in July.
"The monthly Hometrack surveys continue to show that whilst there are concentrations of strong market activity and robust house price growth, the reality is that across two thirds of the country house prices remained unchanged. This is largely a result of continuing affordability pressures in the markets away from southern England which experienced rapid high price growth between 2002 and 2004."
The survey also reveals that the average time to sell a property and the proportion of the asking price achieved have remained unchanged over July - see charts 3 and 4. This is further evidence that the momentum of the first six months of the year has started to wane.
"The prospects for house price growth over the rest of the year are down to the short term direction of interest rates and external factors that impact on market sentiment. If rates were to move higher over the autumn then this would certainly have an impact on levels of market activity and support the expected slowdown in the scale of growth. Even with no change in interest rates, the upsides for house price growth are limited with affordability pressures set to remain a constraint on price appreciation across large parts of the country." comments Donnell.
"The primary source of relief for affordability constrained buyers will most likely originate from a sustained period of below average house price growth. This 'unwinding' of stretched affordability levels in the regions away from southern England could well have another 12-18 months to run if the experience in London between 2002 and 2005 was anything to go by. Even in London the recent strength of the market means that any headroom for above average growth is being rapidly used up."
"Despite the strong first half of the year, we expect levels of demand to moderate over the rest of the summer and into the autumn with any increase in interest rates compounding the likely slowdown. Overall we expect average house prices to rise by 4% over the year" he concludes.
| Headline statistics | Jul-06 |
| Weighted Overall Average Price | £166,500 |
| Weighted Overall Average Price Change | 0.6% |
| Change in number of new properties listed | 0.8% |
| Change in no. of sales agreed | 2.0% |
| Sales price as a % of asking price | 94.9% |
| Change in number of new buyers registered | -0.9% |
| Time taken to sell (weeks) | 6.5 |
| Average number of viewings per sale | 10.8 |