October’s property price spike won’t reverse the overall direction of the UK residential market, which could be headed for a 10 percent drop over the next year. This price slump could suppress supply and prevent steeper decline, but even with optimal interest rates and affordability, market recovery still requires access to lending. See the following article from Property Wire for more on this.
It is certainly no surprise that the latest monthly UK property price index gives out confusing signals with the Halifax showing prices rose in October after falling in September.
The average price of residential property increased 1.8% to £164,919 during October following a 3.7% fall in September, according to the Halifax.
The September fall was the biggest on record but Halifax and others suggest the longer quarterly figures are more reliable that one off monthly data. The Halifax figures show that prices went down 1.2% in the last three months.
Earlier this week the Nationwide reported a monthly 0.7% fall in prices in October and a quarterly decline of 1.5%, the biggest since April last year.
What the figures do show is that the UK property market is in decline and most experts believe prices will either fall or remain stagnated for the rest of the year and into 2011.
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‘Does the 1.8% rebound in house prices in October reported by the Halifax significantly change our view that house prices are likely to soften by around 10% by the end of 2011? In a word, no,’ said Howard Archer of IHS Global Insight.
‘It is not inconsistent with our view that house prices will trend down gradually overall through the final months of 2010 and during 2011 rather than crash, to lose around 10% of their value. Having said that, there may well be significant volatility around an overall gradually declining trend,’ he added.
Martin Ellis, housing economist at the Halifax believes that property price data on a quarterly basis provides a clearer indication of the overall market trends, smoothing out the volatility caused by the reduced number of monthly transactions in all house prices indices’ monthly figures.
He points out that all the major house price indices are indicating an underlying slowdown in house prices notwithstanding a divergence in monthly reporting. ‘There has been a very mixed picture of monthly house price rises and falls throughout 2010, which continued in October,’ he said.
‘An increase in the number of properties available for sale in recent months, together with a decline in demand, has put some downward pressure on prices in recent months. We do not believe that prices are set to fall sharply over a sustained period. Interest rates are likely to remain very low for an extended period, which will continue to support the improved mortgage affordability position for homeowners. Low rates and stable employment levels are benefiting homeowners,’ he added.
Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, said that the rise in prices in October was actually the sharpest month on month gain since May 2009 but it needs to be seen in the context of the very weak September figures and the underlying picture is more consistent, with prices continuing to slip on a quarterly comparison and the positive year on year change diminishing.
‘RICS’ forward looking indicators suggest that this softer trend in pricing is likely to continue over the coming months although, if history is anything to go by, supply of properties to the market is likely to drop in this environment. One consequence of such a development is that prices are unlikely to fall very far. More importantly, transaction activity is set to remain at relatively subdued levels,’ he explained.
Jonathan Moore, director of easyroommate, points out that buyers are unable to take advantage of record low interest rates and affordable prices because of a lack of lending and first time buyers cannot afford the large deposits needed for a mortgage in the current climate.
‘Affordable, achievable mortgage finance remains key to re-igniting the recovery and unlocking the first time buyer market,’ he said.
This article has been republished from Property Wire. You can also view this article at Property Wire, an international real estate news site.