Home.co.uk
Home.co.uk

News: Falling demand set to end asking price rally

Asking prices for residential properties on the market in England and Wales increased by 0.5% this month, continuing the recent rising trend that has characterised the later half of 2006.

Home.co.uk said such confidence amongst sellers, despite interest rate hikes by the Bank of England signifies the renewed strength of the UK housing market, but the firm warns that affordability factors will soon stem the pick up in asking prices.

Furthermore, predicts Home.co.uk, a ‘tipping point’ similar to the one that precipitated the current US housing slump is all the closer after the Bank of England’s third rate hike.

 

The present asking price rally follows in the wake of a 2-year period of eroding asking prices, which served to ease affordability constraints affecting the market to the point at which buyers returned. Correspondingly, the current up-turn in house prices has been driven by this increase in buyer demand, especially from first-time buyers.

However as prices continue to surge, affordability will again diminish and buyer demand will begin to ebb in this finely balanced market, said the firm in their January forward market indicator.

Regional housing markets

Regional average asking prices for January 07, showing gains and losses over 2006.

Scotland

£166,308

+17.9%

Wales

£194,942

+8.5%

South West

 £265,653

+4.9%

Greater London

£320,540

+4.3%

South East

£278,812

+1.9%

West Midlands

£201,896

+1.4%

Yorkshire and Humber

£171,786

0.0%

 East Midlands

£187,918

-0.5%

East Anglia

£255,347

-0.9%

North West

£185,064

-1.3%

North

£167,198

-2.5%

Regional analysis

Looking at the regional asking price breakdown for the UK, what is most apparent is the significant degree of variation. Scotland heads the league table for house price growth in 2006. Scottish asking prices increased at more than twice the rate of that in Wales, the runner-up.

At the other end of the spectrum, asking prices in the North and North West diminished, by 1.3% and 2.5% respectively, over the course of the last year. Asking prices in the South East followed the national average most closely in 2006 with a small overall rise of just 1.9%. Rises in Q4, boosted the 2006 gains significantly in all regions except the North, East Midlands, North West & East Anglia.

 

Scotland has experienced a considerable increase in the region’s housing market confidence over the last four months. Despite rising interest rates and an asking price plateau observed in the summer months, sellers of property in Scotland pushed up the market’s house prices by 9.2% in Q4 2006, raising the overall growth since Jan ’06 to a massive 17.9%.

It remains to be seen whether there is sufficient buyer demand in the region to support transaction levels at these higher asking prices.

North

Asking prices in the North of England cooled markedly for the most part of last year. In more recent months, prices appear to have stabilised but remain subdued.

East Midlands

Following a sharp fall in Q3 2006, property market prices in the East Midlands have been relatively slow to recover lost ground in more recent months.

Another interest rate rise

By any method of measurement one might choose, CPI or RPI, inflation is on the loose. The latest CPI figure, which is the UK government’s more ‘dovish’ measure, stands at a record high of 2.7%. The RPI is heading skywards and currently stands at 3.9%.

Meanwhile broad money (M4) is spiralling up at around 15% per annum, according to the Bank of England, seemingly out of control. The supply of credit is still essentially an ‘open tap’ as the two quarter turns of the interest rate screw in H2 2006 did little or nothing to stem the flow. Consequently, the ‘Old Lady of Threadneedle Street’ has added a further quarter turn this month (+0.25%) in a further attempt to apply the brakes as the asset price juggernaut careers ahead into 2007.

The tipping point approaches

Each turn of the screw takes the UK housing market closer to the brink and in a market hamstrung by affordability constraints there is very little room to manoeuvre.

The current US housing slump is a direct consequence of a series of interest rate hikes in 2006, by their central bank, in an attempt to curb inflation. A similar chain of events appears to be now unfolding in the UK.

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