House price rise breaks downward spiral of falls

New stock levels this month are at a two year low, and we expect this lack of property coming to market to assist an upward trend in new sellers’ average asking prices for the next three months as it coincides with the run in to the spring moving season.

Miles Shipside, director of Rightmove, comments:

“The opening skirmish in the 2011 price battle looks to be going marginally in favour of scarcer sellers, especially in locations preferred by tooled-up cash buyers or those packing a hefty deposit. With the number of new sellers at a two year record low, prices are being under-pinned by muted new supply just managing to fight off the downsides of lender
reticence. However, in less popular locations, the smokescreen of New Year price optimism is temporarily masking the collateral damage that the new era of tighter credit will continue to inflict”.

A national rise of 0.3%, while small, is a timely positive sign for some new sellers as it breaks the downward spiral of falls in five of the previous six months. It is not unusual for traditionally optimistic January sellers to ask more for their property, though 2008 and 2009, post the Northern Rock and Lehman Brothers collapses, did record falls of 0.8% and 1.9% respectively. Sufficient confidence had returned by January 2010 for new sellers to increase their prices by 0.4%.

The market remains thin and open to volatility. On the upside we have the shortage of fresh property stock that helps push prices upwards in popular areas, giving a positive sheen to countrywide averages.

Battling to bring the national average down are those less desirable locations and property types where prices are under pressure due to a famine of ready, willing and able buyers. There is clear evidence of the knock-on effects of two-tier mortgage lending. Prospective buyers of flats, terraced and semidetached are, by definition, less likely to benefit from the higher deposits built up by detached property purchasers and therefore will be thinner on the ground. Consequently, Rightmove has recorded yearon-year asking price falls for flats, terraces and semi-detached properties of around 1%, while detached properties have increased by 1.6%.

Shipside adds: “This month’s price rise will come as a welcome respite to prospective sellers as they had witnessed falls in five of the previous six. However, it is a two-tier market. Those areas and property types coveted by mortgage-ready buyers are likely to experience a supply famine that will help underpin their prices this spring. Wherever those deposit-rich choose not to wander, the on-going mortgage famine will ensure sellers in those areas will remain buyer-hungry and will continue to see downward price pressure”.

As well as the slight rise in new sellers’ asking prices, record internet search traffic provides a welcome sign of pent-up buyer demand. Rightmove recorded its busiest ever day on 11th January with over 28.3m pages viewed. Our December forecast of fewer properties coming to market in 2011 shows further signs of becoming reality this month. Average weekly numbers of new listings are running at 9,159, compared to 10,125 measured in the same period last year, and still well down on pre-credit crunch January norms of circa 17,000. The heavy snow will have played some role in the low listing numbers, and it will be important to see to see to what extent figures bounce back in the next few weeks.

The semi-detached property type is in the shortest supply, down 30% on last year, while detached, terraces and flats are all down around 10%. Owners of semi-detached homes wishing to move rely  heavily on the ability of terrace home-owners to trade up, but terrace occupiers, in turn, are hardest hit by the dearth of first-time buyers and lack of chains. In addition, for owners of semis bought within the last few years, the overall price standstill during that period has probably seen their equity stagnate or diminish.

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