News: House prices drop for first time in 2 years

Tue, 18 Sep 07

House price growth turned negative in August as demand slowed sharply, reports the Royal Institution of Chartered Surveyors...

House price growth turned negative in August for the first time since October 2005, reports the Royal Institution of Chartered Surveyors (RICS) in its most recent survey of the UK housing market.  1.8% more Chartered Surveyors reported a fall than a rise in house prices, contrasting sharply with July when 10.8% more reported a rise.

Rate rises starting to bite

Enquiries from prospective buyers declined for the ninth consecutive month and at the fastest pace since August 2004.  RICS believes this downward trend in demand is linked to recent interest rate rises which are worsening buyer affordability.

RICS spokesman Ian Perry said: "Potential house buyers have become far more cautious as they wait and see what effect interest rate rises will have on household finances.  Affordability is at its most stretched in over a decade and many will worry that rising mortgage repayments will prove a step too far.”

Supply also declined with new instructions to sell property falling for the third month in a row.  RICS attribute this trend to continuing confidence in household finances meaning that vendors feel under little pressure to sell.

London market still going strong

New buyer enquiries fell across most regions as demand faltered.  This trend was most prevalent in the West Midlands, the North West and East Anglia.

However, RICS report that London is remarkably resilient and yet to be affected by the current credit market turmoil.  It remains the region with the strongest price growth in England.

Significantly, the number of four-bedroom houses on the market has declined by 51% on levels a year ago, making family homes even more difficult to purchase.  This is possibly a result of the August HIPS deadline, RICS suggests.  

Uncertain outlook

The caution amongst potential buyers has severely dented surveyor confidence in the outlook for house prices.  However, after a period of loosening since April, market conditions are now starting to tighten up, with the stock of unsold property on surveyor’s books down 10% on year ago levels.

Looking ahead, Perry commented: "The market will soften further, going into the autumn, reducing some impetus from those that have been chasing a rapidly moving target.”

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