Rightmove reports that the average asking price has fallen by 0.8% (£1,968) this month, bringing the annual rate of increase down to 3.4%, its lowest since December 2005. This is the third consecutive monthly fall, although there are signs of price stabilisation as the majority of the price drop is due to the rush of smaller properties to the market in mid December to beat their HIPs deadline. Early January shows signs of a market recovery despite time on the market and stock levels hitting record highs in December. There has been an active start to New Year as buyer interest spurred by lower prices and falling interest rates.
The first housing market data from January is always eagerly anticipated to give an early pointer to the prospects for the year ahead. This is especially true in 2008 after the uncertainty surrounding the second half of last year. Over the whole month average national asking prices fell for the third month in a row by 0.8% (£1,968). However, there is clear evidence of a marked increase in activity and average prices immediately after the New Year. In addition, much of the monthly fall is due to the final HIPs deadline for smaller homes attracting more cheap properties to the market. The January housing market therefore seems to be showing signs of its usual upturn, after several months of sellers readjusting
their prices.
Miles Shipside, Commercial Director of Rightmove comments: "Some homebuyers are now able to find properties that have fallen into their affordability zone, and are bagging what they see as bargains against previous prices. Some properties have had their prices dropped by 10% or more and are now within reach, satisfying some of the pent-up demand from previously disenfranchised buyers."
As well as lower prices, further cuts in interest rates are critical to continued improvements in affordability and the recovery of the housing market from a difficult year end position. Time on the market peaked at a record high of 98 days in December, though it has declined to 95 days in the first weeks of January. The previous high was 93 days in January 2006.
Average property stock per estate agency branch ended the year at 63, some 20% higher than the 52 properties of a year ago. Continued action is required by the banking sector to improve liquidity, along with further reductions in interest rates, adding pressure to lenders to pass on the benefits to borrowers in terms of lower mortgage rates and greater availability of funds.
Estate agents report a positive upturn in new movers and activity levels. The high number of potential homemovers looking is borne out by the number of visits to Rightmove, up nearly 20% on the first two weeks of last year. Last Monday was the busiest day on record, with over a million visits, viewing 20.9 million pages. The growth of households and ongoing desire to get onto the property ladder underpins demand, and there are sellers keen to sell. Those who have owned their property for a few years are still benefiting from a substantial equity growth and, if buying again, are able to negotiate corresponding reductions.
Rightmove measured 28,318 properties coming onto the market in the first full week of January, and in addition the final HIPs deadline for two or fewer bedroom properties boosted listings in mid-December. This HIP avoiding surge exacerbated the price fall by
circa 0.7% as they tended to be cheaper-than-average properties making up a greater proportion of the new listing mix. We estimate HIPs distortion to average prices will have worked its way out of the system by next month. However, there are some big regional price fluctuations this month due to the combination of local corrections and the aforementioned HIP exaggeration effect.
The drop in the annual rate of increase from 4.8% to 3.4% has resulted in the lowest year-on-year figure for two years, mirroring the 2005 property market downturn. An unsustainable mini recovery was then triggered by falling interest rates and a City-led London-centric boom supporting buyer confidence. A sustainable recovery to a volume sales market requires a return of more first time buyers or buy-to-let investors, and a lessening of the costs for existing home owners to trade up. The price re-adjustments we have seen over the last few months appear to be assisting, and with a flat price rise forecast for 2008, affordability should continue to improve as average wages rise and interest rates fall.
Miles Shipside adds: "Enough sellers seem to have dropped their prices to encourage potential buyers to look in larger numbers, suggesting we might see a more active market at this lower price level. The key for New Year sellers is to really stand out as the best value and best presented property in your potential buyers' catchment area; thereby building on this level of increased interest. Some sellers will no doubt be tempted to test the market at a higher price with the onset of spring, so now is a good time for bargain hunters to press those committed winter sellers for a deal."
