Sluggish start for housing market in 2011

Nia Williams

January 27, 2011

This is according to the latest Hometrack survey of over 5,000 agents and surveyors which showed that in January 2010 demand stood at -2.7%, a sharp contrast to today’s figure of -9.5%. This suggests that the housing market is facing more fundamental underlying issues than the usual post-Christmas slowdown.

With recent rises in the cost of living, household budgets will only come under further strain if concerns over rising inflation translate into higher interest rates, according to Hometrack as it will dampen demand.

The supply of homes for sale is likely to dwindle further over the next two quarters. Hometrack believes that in the short term this will not be enough to offset the downward pressure on prices, but over the course of the year it will begin to act as a support to pricing.

Nationally, house prices fell by -0.5%, according to Hometrack’s data, with the average house price now standing at £153,600.

Wide variations in the relative health of the housing market can be explained by different underlying dynamics between supply and demand. The average time on the market in the North and Midlands is now close to 3 months, compared to just over 2 months in the South.The percentage of the asking price being achieved is falling off a higher base in Southern England although the weakness in pricing is most pronounced in Northern regions.

Commenting on the latest monthly national housing survey, Richard Donnell, director of research at Hometrack, said: “There are no signs of a New Year bounce for the housing market as 2011 begins with a sluggish start. The supply of new homes coming to the market continues to fall but it is the change in demand that we need to pay most attention to, as this will have the greatest impact on pricing levels in the first half of 2011.

“Concerns over the economic outlook and the biting reality of spending cuts are doing little to improve a fragile market defined by weak consumer sentiment and a lack of demand for housing.

“Over the last 6 months the Hometrack survey has recorded a 26% fall in demand, with January posting a 9.5% decline. A seasonal fall is not unexpected at this time of year, but compared to 12 months ago – January 2010 saw a 2.7% fall in demand – the underlying weakness is far more pronounced at the start of this year.

“The net result is a 0.5% fall in average prices over the month which brings the year-on-year rate of growth to -2.2%. Price falls were recorded across 37% of the country, compared to 36% in December.

“As highlighted previously we expect the supply of housing for sale to contract over 2011 as lower prices prevent vendors putting their homes on the market. New property listings fell by 5.4% over January – the largest monthly decrease for 4 years. We expect the supply of homes to dwindle further over the next quarter as sellers are either forced to reduce prices or withdraw their homes from the market.

“In the short term this is not enough to offset the downward pressure on prices, brought about by the current weakness in demand, but over the course of the year it will start to act as a growing support to pricing levels.”

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