House prices rise as demand outstrips supply

Amanda Jarvis

February 27, 2006

This is the third consecutive month of house price growth and the highest monthly rise since June 2004. House prices now stand at £161,700.

Demand runs well ahead of supply
“A key driver of higher house price inflation over February has been a surge in the number of new buyers coming into the market” comments Richard Donnell, Director of Research. Nationally, the number of buyers registering with agents rose by 26% over February.

“However, it is a general shortage of homes for sale that really underpins the growth in average values over the last month” Donnell adds. The strong end to 2005 saw agents sell a significant amount of stock. They have started the year short of stock. As the supply of homes for sale is not keeping pace with demand so we are seeing the strong rise in average prices. This trend is most obvious in the southern parts of the country where the greatest imbalance exists.

Important regional differentials
The Hometrack analysis shows that in London prices rose by 0.9% on the back of a 35% rise in new buyers but only a 10% rise in the number of homes for sale. A similar mis-match between supply and demand resulted in prices move higher by 0.3% in the South East and 0.5% in East Anglia. In all these regions where prices are rising, the average time taken to sell property has been declining – in London the average is under 5 weeks for the first time since July 2004.

In contrast house price growth away from the south of the country remains subdued. The difference between supply and demand is less stark and the pricing of housing in many areas is still adjusting after the phase of very strong growth over the period 2000 to 2004. The time taken to sell property remains above average and achieved prices are still below the average for the last few years.

The counties reporting the highest price rises are Central London & City (1.6%), North London (1.5%), East London (1.2%) and Cambridge (0.9%). South-East London, South-West London and West London all reported price rises of 0.7%. The worst performing counties are mainly found in the North, including South Yorkshire (-0.1%), North Lincolnshire (-0.1%) and East Riding of Yorkshire (-0.1%).

Richard Donnell, Director of Research at Hometrack comments:
“Prices are likely to continue to rise over the next month or so as a result of buyers returning to the market and supply remaining limited. Most of this growth is likely to be concentrated in southern parts of the country.

“The key issue is whether the momentum of the first few months of 2006 can be maintained, especially after the strong end to 2005. Much hinges on the outlook for interest rates, the strength of the economy and the direction of consumer confidence. A period of improved market activity was always inevitable after the lengthy slowdown between mid 2004 and mid 2005 but the reality is that housing remains fully valued across much of the country. We expect values to keep rising, but the scale of growth over the later parts of the year is set to be far more modest than what we are currently seeing in a supply constrained market”.

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