Are asking prices a reliable lead indicator?

Nia Williams

August 18, 2010

Commenting, property economist Paul Diggle said: “The fall in asking prices reported by Rightmove was noticeably stronger than the traditional dip normally observed in August.

“Although August is typically a weak month for asking price growth owing to holidaying buyers, the latest result was 0.8 percentage points worse than the average August decline.

“There is a need for caution when interpreting the asking price data. As we have seen, asking prices are stickier than final selling prices. But in this context, the fact that asking prices have fallen 2.3% in the past two months is indicative of the fragile state of the housing market at this time.

“What’s more, the drop in buyer interest in recent months also now appears to be forcing sellers to accept lower offers.

“Although only available for July, the latest data show that achieved sales prices, expressed as a percentage of asking prices, edged lower, the first fall in almost 18 months. We suspect that they edged lower again in August.

“Taken together, the weakness now evident across a range of house price indices suggests that the market is on a downward path.

“Regardless of exactly how well asking prices predict movements in house prices, the bigger picture is that most of the house price measures are pointing to a market that is going into reverse.”

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