Housing market ends year with hints of imminent recovery

Amanda Jarvis

January 9, 2006

The UK housing market ended 2005 with the average price of a new home at £255,713, down 4 per cent from the end of 2004 and completing nine months of consecutive annual decreases according to figures.

However prices over the short term have remained stable with 0.0 per cent change from the previous month and only a marginal decrease of 0.1 per cent over the last quarter. This would appear to indicate that the new homes market is recovering from its period of decline over last year and that a return to positive price inflation is imminent. Providing further evidence to support this view, data recording the price homebuyers are willing to pay for new homes shows a substantial rise over recent months suggesting that consumer confidence in the market has returned.

Regionally, the West Midlands and North West are the areas showing the most recovery from the year-long price slump, with both the South East and London also seeing a more steady recovery. Scotland and Wales remain stable, but Yorkshire and Humberside, the East Midlands and the North have all seen average prices decline over the year, making them amongst the cheapest regions in the UK. The South West has also experienced steady decline throughout 2005 but after strong price inflation in previous years, it remains one of the UK’s most expensive regions.

Apartments proved to be the real winner of 2005, ending the year with a dominance of the new homes market, making up 57 per cent of all the new properties currently available compared to just 28.6% for detached homes.

David Bexon, managing director of SmartNewHomes.com, commented: “Although 2005 has been a somewhat difficult year for the housing market and the new homes market in particular, it is promising to see signs that 2006 is looking brighter. Shorter term price changes, more indicative of the way the market is turning, have been showing for several months that an upturn is imminent and we confidently expect a return to positive inflation within the next couple of months, albeit at a more realistic and steady rate than that of recent years. Evidence is also present of increasing consumer confidence and as buyers realise that the market is over the worst, prices will begin to creep up again and activity levels will become healthier.

“Generally, it has been the more expensive regions which have seen prices recovering sooner, but the cheaper regions such as Yorkshire and Humberside and the East Midlands are the ones which are most likely to see the most significant increases over the coming year.

“The dominance of apartments in the new homes market is still cause for concern not least because it illustrates the increasing disparity between supply and demand as a consequence of the government’s misguided planning regulations and unrealistic targets. Urgent steps need to be taken towards enabling homebuilders to correct this balance and build more of the houses that buyers want to be living in, thus boosting the health of the entire market.”

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