What you need to know about house price trends
(Source: Western Mail Jun 1 2007)
The latest wave of house price data has led to speculation over the future of the property market. The annual growth rate remains robust but indicators suggest a slowdown in the months to come.
What is the background to today’s housing market?
Homeowners have seen the value of property almost treble over the past decade. In April 1997 the price of an average UK house stood at £67,469. Last month it hit £196,745 according to figures from Halifax. In 2006 alone, prices climbed by 10% and the high level of growth has continued into 2007. Latest figures show that in May, annual house price inflation remained in double digits.
What has driven the market?
House price growth is determined by a number of factors, not least the overall state of the economy. But a significant driving factor in the recent “boom” has been a problem with supply. In short, there are simply not enough houses being built to deal with home-buyer demand.
Demand from buy-to-let landlords, fuelled by migrant workers, has also contributed to the boom.
Is there any evidence that a slowdown is on the way?
On the surface the property market still looks fairly buoyant. But indicators are beginning to suggest things could be about to change. Buyer demand seems to be on the wane across the county. The Royal Institution of Chartered Surveyors said that in April new buyer inquiries fell for a fifth consecutive month.
The number of mortgages approved with home buyers in April fell to a 12-year low, according to Bank of England statistics.
What is behind the drop in demand?
Affordability concerns are beginning to hit would-be buyers. Soaring property prices have resulted in houses being at their least affordable level since 1991, RICS said earlier this year.
In addition, the four interest rate rises since August have added to the cost of servicing a mortgage and dampened demand further.
So why have these factors not resulted in a marked slowdown?
Some analysts say that weakening demand and higher interest rates have not yet filtered through the system to show up in the monthly house price figures. But there is also the problem that London and the South East of England continue to distort the overall market.
The UK scene is even more distorted as some areas like Northern Ireland are still showing significant growth in prices.
So how have other regions been performing in comparison?
Recent data from the Land Registry showed year-on-year growth in all regions of England and Wales of at least 6% – a healthy level. But the latest round of data also revealed that a number of areas in England were beginning to record monthly falls. The North-East, South-West, North-West and Yorkshire and The Humber saw prices drop by between 0.2% and 1.1% in April.
So does this mean we reached a turning point in the UK housing market?
What appears to be happening is a gradual slowdown. It must be remembered that the most recent data still puts annual house price inflation above 10% and property experts say it might be a few months until it starts dropping significantly. There certainly appears to be some steam left in the market at present but a further expected interest rate rise in the coming months could lead to a quickening in the pace of the slowdown.
Most are predicting that by the end of the year house price inflation will drop to between 5 and 8% annually.
Could we see the price of houses falling in the near future?
It is very unlikely. The UK has never seen a housing bust outside of a recession. The lack of available housing and a robust economy should mean that a property crash only exists in the nightmares of homeowners. But it is possible that some parts of the country will see small falls next year, economists say.
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