Property News Item: 00158

19th Jun 2006

Southern supremacy returns as the north stands still

Source: http://www.rightmove.co.uk

The Rightmove House Price Index - June Edition

Summary

* Monthly rise of 0.8% (£1,613) as southern mini-boom in asking prices leaves northern regions behind
* Average annual rise in the south of 9.4% contrasts with 2.7% in the north
* The 4 year trend of the north catching up with the south comes to an end as the gap widens
* Property is now 55% more expensive in the southern regions than in the north, up from a low of 46% in September 2005
* A rise in interest rates could hit activity hardest in the regions further away from London.

Overview

Average national asking prices rose by 0.8% (£1,613) in the last month. The annual rate increased from 5.9% to 6.4%. This is in line with our revised 2006 forecast announced last month, up from 5% to 8%.

The mini-boom in prices continues to be led by the south of the country. Indeed, falls in many of the northern regions of England have now changed this from a southern-led boom, to effectively a southern-only boom. One result is the reversal of the four year trend of a narrowing gap between prices in the north and the south. In June 2002, average prices in the South were double those in the north. The gap is now widening again, having reached a turning point last September when the average property was only 46% more expensive in the southern half of the country. The southern regions are now over 55% more expensive as they return towards their long term supremacy.

The average annual rise in the south of the country now stands at 9.4%.The south's resurgence is led by increased demand for 'top end' properties, fuelled in part by cash-rich buyers from both the UK and abroad. Access to sources of money other than mortgages based on earned income has meant that the south is less constrained by traditional affordability parameters. Economic migration as the south became comparatively more affordable and a shortage of suitable properties are also contributing to the rise. Increases have been most marked in the Greater London region, especially in the wealthier boroughs. Buyer affordability improved there after prices fell by 1.3% in 2003 while the north of the country was booming. Greater London sellers are now asking £33,106 (11.7%) more for their properties than a year ago. In contrast, the lowest rise in a region of England is the North where sellers can ask only £158 (0.1%) more.

Miles Shipside, Commercial Director of Rightmove comments: "The buoyancy of the southern economy and demand for quality property by affluent buyers are having the effect of increasing homeowners' net worth even further. With hindsight, the best time to move from the north to the south and 'bridge the gap' was in September last year, when the difference was at a four year low of 46%. Parts of the north are now being left behind, as stretched affordability has limited sellers' ability to increase prices in most regions."

The average annual rise in the northern half of the country is 2.7%. With inflation currently running at 2.2%, prices are close to a standstill in real terms. Affordability seems to have reached its limits, and can only be improved by wage increases, a reduction in interest rates or a fall in real house prices. With the next move in rates anticipated to be upwards, housing activity in the regions further away from London could be hardest hit. An upward movement in interest rates would come at a time when the pace of price rises is slowing due to seasonal factors, from 2% in May to 0.8% in June. This is a clear sign that the recent rate of increase is not sustainable, and will slow in the second half of 2006.

Miles Shipside adds: "Demand and transaction levels are still healthy in the north despite the slowdown in prices. Any upward movement in interest rates could put this in jeopardy at a time of year when the market normally slows down."