House price confidence has weakened further with demand slowing, but supply is remaining very constrained, according to the September 2007 UK Housing Market Survey from the Royal Institution of Chartered Surveyors (RICS).
Surveyors reported that house price growth remained negative for the second month in succession. 14.6% more Chartered Surveyors reported a fall than a rise in house prices, down from 3.3% reporting in August - the fastest decline since September 2005 when 19.4% Chartered Surveyors reported a fall than a rise.
Looking forward, Surveyor confidence in both sales and prices deteriorated further, reaching their lowest levels respectively since March 2003 and May 2005. Deteriorating confidence is being driven by the demand side of the market, with interest rate increases and related financial markets issues depressing surveyors' outlooks.
New buyer enquiries declined for the tenth consecutive month and at the fastest pace since March 2003. 51% more Chartered Surveyors reported a fall than a rise down from 39% in August. Five interest rate increases since August 2006, and tightening mortgage lending criteria is weighing further on buyer affordability.
However, new instructions declined for the fourth consecutive month at the fastest pace since June.
21% more chartered surveyors reported a fall than a rise in new instructions to sell property. While the real economy remains fundamentally sound, vendors are under no pressure to sell. That said London, whose economy is heavily geared towards the financial services sector, was the only region in the survey to experience a rise in instructions.
As a result of weakening demand but constrained supply, market conditions tightened further. The ratio of completed sales (over the last three months) compared to the stock of unsold property on the market increased to 38.4% in September from 37.7% in August as the fall in stocks was proportionally larger than the fall in sales.
Market conditions have eased from the peaks in March, but they are still tighter than the survey's long-run average of 37.2%. Scotland saw the strongest price growth but the largest price falls were reported in East Anglia, Wales and in the Midlands. Smaller falls were reported in the South East, South West, Yorkshire and Humberside and the North West.
RICS spokesman Jeremy Leaf said: "Although house prices continue to fall, the underlying economy remains strong. A major correction in the market seems unlikely while economic growth is above trend and employment conditions remain buoyant. The combination of rising interest rates, the introduction of HIPs and volatility in the financial markets resulting in tightening of lending criteria, has certainly affected the confidence of buyers and sellers. As a result, some would-be buyers are turning to the rental market whereas others, conscious that the next move in interest rates is now likely to be down rather than up and market meltdown is highly improbable, are seizing the opportunity to negotiate with more flexible vendors in a less competitive market-place."
