Housing transactions fall back in August

LSL commercial director David Brown said:

“The pickup in house sales since the start of the year dropped off in August. The exception is London where high demand for prized property from cash-rich buyers has seen housing market activity increase. Some buyers will be wary of imminent public sector cuts and the knock-on consequences for the economy.

“In the short term we expect small fluctuations but no significant dip in the wider market. Regional differences may be quite stark as some areas of the country feel the effect of cuts more than others. Active first-time buyers are the key to a healthy housing market and most are waiting for more attractive products from lenders before they make a move.

“Lending has been broadly flat and house price growth has slowed, with neither likely to pick up again until positive economic news helps to ease lending conditions. Lenders and the government must perform a financial balancing act to ensure supply does not begin to pull away from demand.”

Dr Peter Williams, housing market specialist and Chairman of Acadametrics, commented:

“The average price of a home in England & Wales is now £222,454. At this level, it is down £9,374, or 4.0%, from its peak in February 2008 of £231,828. When prices are largely static, as now, those transactions reported to the Land Registry after some months delay can swing small changes in the average house price from plus to minus and vice versa. Thus, further data emerging from Land Registry have modified our reported month on month price increases for May, June and July 2010, amounting, in our previous reporting, to an aggregate -0.1% (c. £220) fall for the three months. The additional data result in a +0.5% (£980) increase over the period, an outcome which is also reflected in our reported 0.2% rise in prices for August (based on our index of indices forecast).

“Our practice, as above, is to maintain a constant update until the effect of every transaction has been recorded. Assuming no further significant change, nominal house prices have fallen by a mere -0.3%, since March 2010. Hence, to all intents and purposes, the market has been static with minor monthly oscillations. Our annual rate of growth at 7.7% reflects past price changes rather than activity in more recent months and, as earlier months drop out from the annual calculations, we will see the annual rate of growth continue to fall over the remainder of the year.

“The price indices published so far for August, plus a number of forecasts, show that views of both the present and the future remain very mixed and highly dependent upon the reporting base and modelling assumptions. Given the volatility shown in sample-based indices, we would caution against reporting each release as a one-off. Specifically, the mortgage-based indices do not include prices for cash purchases, and possibly exclude some of those of higher priced homes. Whilst the lender indices have a deserved reputation in indicating change, our index, based upon all prices, does not show that prices, as reported on the Land Register, are falling such that a double dip in prices is already occurring, and nor does the CLG index which is based upon completion prices. We report how the prices reported by the lenders early in the transaction cycle relate to the final prices, allowing a 2 or 3 months delay, in our Quarterly Comparison of Indices.

“Whilst the possibility of falls certainly exists, much will turn on what happens to the wider economy both here and in the USA. Falls are reported in the reservations for new homes and the Bank of England Trends in Lending report for August suggested that mortgage lending for home purchases and remortgaging was broadly flat. Offsetting these clear negatives are the continuing unmet demand for housing, the steadily growing shortfall in newly built homes and the evidence of strong local and regional variations. Much turns on area and property type and there are some active markets where prices continue to rise. Given the negativity that surrounds the market, it behoves buyers to choose carefully; we discuss this in detail in our section on regional analysis.

“What the overall position suggests is that we will continue to experience a market which is flat. If, however, the economy turns down sharply and interest rates are pushed up, we can expect to see the housing market weaken significantly and even to see the double dip. If, however, the UK economy avoids a dip and growth recovers, the possibility exists of quite strong house price growth, especially if mortgage supply is restored.

“It is at that very point, of course, that we may witness the application of monetary policy controls to forestall a boom in housing assets. Aside from imposing higher capital requirements, the Bank of England?s Deputy Governor Charles Bean recently said „Finally, there is the option of introducing direct constraints on the terms or availability of credit, for instance imposing maximum loan-to-value ratios in the mortgage market?. He concluded „the best approach seems likely to involve a portfolio of instruments?. Whilst the short-term outlook is for modest fluctuations in prices, if the economy weakens further, we can expect to see prices follow it down. However, in the long term, we could be in new territory with the Bank seeking to take a stronger stance on house prices with the aim of stopping rapid surges in prices – at this stage we simply do not know! “

“From a seasonal point of view, we have seen the number of housing transactions in August increase above the July level, in six of the last fifteen years, but fall in nine of the years, with an average fall of -1.1%. This year, we estimate that the number of houses sold in August will be 60,600, which is down -13.7% on the July figures. This would indicate that the unusually large expansion of sales, observed in July of this year, has not been maintained, and that the market has fallen back to its 2009 levels. The level of August sales at 60,600 is 59% of the long term average of 103,180; this compare to July when sales were at 67% of the long term July average.”

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