Average national asking prices have dropped by 0.7% (£1,656) in November, with all regions except London falling, according to Rightmove's House Price Index. Overall prices are forecast to remain flat at 0% in 2008. Major price falls are unlikely, as the majority of sellers will not forced to sell and market underpinned by long term increasing demand outstripping inflexible supply.
The depressed state of the housing market has resulted in sellers dropping their asking prices by an average of 0.7% (£1,656) this month. The net effect is that prices have remained at a standstill for the last 4 months, reducing the annual rate of increase to just 7.9%. Rightmove expects this slowdown to continue, and forecasts that overall prices will be flat at 0% in 2008. We expect more price falls in December and in the first part of next year, before a more stable financial environment and underlying demand lead to some minor price gains later in the year. The overall effect will be a fall in real terms as prices fail to keep pace with inflation. This should also result in a welcomed improvement in buyer affordability, assuming average wage rises continue. A major price correction remains
unlikely as long as the economy avoids a recession as the market is underpinned by the rapidly growing number of households outstripping the limited supply of new build.
Miles Shipside, Commercial Director of Rightmove comments: "Prices are set to flatline in 2008. While we do not expect a price drop overall, there will be parts of the country that are over-priced and over-supplied for the likely levels of affordability and demand next year. In these areas, motivated sellers are starting to cut their prices and will need to be the cheapest on the street to sell. Whilst bargain hunters will be paying less for these properties, prices will rise where demand continues to outstrip supply in quality areas close to major conurbations, especially London."
With fewer properties selling in these tough conditions, the average time on the market has jumped from 85 days to 92 days in the space of one month, the highest November figure since Rightmove started keeping records five years ago. This fall in sales activity is not yet fully reflected in mortgage lending figures, and we expect these to continue to show substantial falls over the next few months.
A slump in mortgage demand may come as a relief to those lenders experiencing difficulties in raising funds in the market, but it is a further sign of the need for a downward movement in interest rates early in the New Year to boost the current low volume of sales. We expect there to be a rate cut in February or soon after, with the money markets also pricing in one or two further downward adjustments during 2008. However, this will not lead to a further price surge such as that following the possibly premature rate drop in August 2005. Prices are 22% higher since that rate decrease, so buyer affordability constraints and the current financial backdrop mean that prices are at or near equilibrium, or indeed over-priced in some areas.
Miles Shipside comments: "The Bank of England will want to be sure that a rate cut will not lead to another surge in house prices, having mistakenly thought they had inflationary pressures under control when they dropped rates in 2005."
As well as significant numbers of potential buyers waiting to see what happens next year, sellers are holding back too. This has resulted in little change to the high levels of stock on the market, with low sales numbers being matched by correspondingly low numbers of new sellers. Average stock per estate agency branch is 65, down slightly from last month's 66. Many estate agents are surprised by the extent of the drop in activity, and are now starting
to employ tougher market tactics to help get people moving.
Miles Shipside adds: "If you have to sell, then seriously consider dropping your price and taking an offer now rather than holding out. You could end up being offered even less in a few months' time. The good news is that with many sellers still refusing to reduce substantially, a 10% reduction can really stand out. In addition, these can be the best market conditions in which to trade up. You need to have strong nerves and employ a switched-on estate agent to help you negotiate not only on your sale, but on your purchase
as well. There should be a narrowing of the price gap to trade up to the next level, so whatever reduction you have to accept from your buyer, you should be able to find a seller who is willing to accept a similar or even greater reduction off a property you wish to buy."
