Rightmove announces ‘house prices exceed all expectations’
It was widely expected that affordability constraints would keep property price rises in 2006 broadly in line with inflation and average wage rises. Beginning of the year forecasts from the Nationwide, Halifax, Royal Institution of Chartered Surveyors, Council of Mortgage Lenders and Rightmove ranged between 0% and 5%. All of these industry expectations are set to fall short as continuing demand from new and existing households still exceeds the increasingly expensive supply of suitable property. In spite of the consensus of a levelling off of demand in the second half of the year, Rightmove (http://www.rightmove.co.uk) is increasing its 2006 forecast from 5% to 8%. This would give an average national asking price of £212,025, representing a rise of £15,706 on the year.
Miles Shipside, Commercial Director of Rightmove property website (http://www.rightmove.co.uk ), comments “The housing market is set to defy the downward pressure from increasingly stretched affordability with double the rise that was forecast by the industry just 5 months ago”.
Average asking prices of nearly 126,000 properties marketed in the last month increased by £4,155 (2%) to a new record of £209,829. That represents an annual rate of increase of 5.9%, jumping up from 4.1% last month. As there were falls in prices of 0.8% in the latter months of last year, it only requires a 1.3% rise over the remaining 7 months of 2006 to hit an annual rate of 8%.
Miles Shipside adds “Demand is a lot more buoyant overall than at this time last year, so a rise of up to 10% in the faster moving regions, such as parts of London and the South, could be on the cards this year. It can’t keep rising like this but will flatten out rather than fall back substantially, as there are few “distress sales” from vendors who are forced to sell at any price”.
There is increasing speculation of a rise in interest rates. Increasing the cost of borrowing will stretch affordability further, making it even harder for buyers to satisfy their housing needs. Increasing the supply of housing and aligning the mix of new build with buyer demand are the only practical long term strategies to make property more affordable.
Subsidising some buyers gives only a short term relief as prices rise and benefit the seller. A rise in the cost of borrowing also has the effect of discouraging the private housebuilder as it potentially lessens the volumes of their buyer activity and increases their cost of capital. With the Bank of England having a single target based on inflation in consumer prices, there is a need for greater attention to be paid to house prices and availability when setting economic and environmental policies.
Miles Shipside forecasts “The cost of housing will continue to rise until this conundrum is solved. The supply and mix of new housing are failing to keep pace with demand in many parts of the country, pushing up prices”.
The timing of Easter in close proximity to the May Day bank holiday also exacerbated the shortage of supply of new property coming onto the market. Home-hunters, who make up a large proportion of future sellers, failed to view property that might have subsequently tempted them onto the market. This pause in activity led to the stabilization of the average stocks per estate agency branch at 65. Time on the market is falling however, dropping from 75 days to 70 days in the last month.
“Agents are reporting more sales on new listings, as opposed to their older stock. If it’s not selling, a price drop or a makeover is the best course of action before the summer holiday slowdown arrives” advises Miles Shipside.
View Rightmove’s house price index (http://www.rightmove.co.uk/template/publicsite%2Caboutus%2CRTPRArchive.vm )
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