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House prices continue to rise

Amanda Jarvis

May 30, 2006

London remains the engine for national house price growth with values in the capital moving 1.2 per cent higher over May. Growth across the rest of the country continues to remain far more limited.

“The growing divide between London and the rest of the country means that it is dangerous to read too much into the headline rate of growth,” said Richard Donnell, director of research at Hometrack. “The London effect has been flattering the overall picture of a relatively buoyant housing market. The reality is that house price growth remains limited across large parts of the country. This latest survey shows that outside London, house prices remained static across two thirds of all postcode areas.

“The prospects for the second half of the year are not so good. The extent of house price growth across the capital is starting to turn down. Turmoil in the equity markets and talk of possible interest rates rises are likely to impact on buyer confidence in the months ahead whilst the World Cup will impact on activity levels over the summer. With affordability levels already stretched we are likely to see much slower house price growth over the second half of the year. We expect average house prices to rise by just 3 per cent over the whole of 2006 Donnell concludes.

House price growth over the 4 months to May 2006

The Hometrack survey shows that house prices rose across 38% of the country with values falling in just 2% of postcodes. Prices rose by 1.2% in London over May and by 0.6% in the South East and 0.5% in East Anglia. Values remained unchanged in the East Midlands and grew by just 0.1% in three regions (Yorkshire and Humberside, North and North West).

The growth in London continues to be driven by a major imbalance between supply and demand whilst across most other regions supply and demand is broadly in balance. In London the average time taken to sell property is down to 3.9 weeks whilst in the lower growth regions sales periods are still between seven and eight weeks.

The increase in the volume of buyers actively searching for a property has reduced the discounts sellers are willing to accept. The latest survey shows that actual sales prices as a percentage of the asking price have risen to 94.7% from a low of 92.7% in January 2005. Activity levels also continued to improve, with a 3.3% increase in transactions over May following a 10.8% increase the previous month. Regionally, activity across London has risen by 4.6%, while across the North, North West and Yorkshire and Humberside activity has risen by an average of just 1.8%.

Counties that have reported the strongest rises this month include North London (2.3%), Central London & City (1.5%), Berkshire (1.3%), South West London (1.1%) and Avon (1.0%). The worst performing county this month is Teeside, which is the only county to report house price deflation over May (-0.3%).


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