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No renewed recovery in 2011 as January house prices fall further

David Brown, commercial director of LSL Property Services, comments:

"Concerns over the direction of the economy, and the ongoing difficulties in obtaining mortgage finance continue to take their toll on house prices. However, the good news is that downwards pressure eased in January, and we are not seeing anywhere like the price reductions we saw at the height of the last sustained fall in 2009.

"Prices are being cushioned by continued demand from cash-rich buyers, as well as slight reduction in the supply of properties hitting the market. We should see a bubble of increased activity at the top end of the market in the next couple of months as buyers look to hurry through purchases of properties worth more than £1 million before the stamp duty hike in April.

"On top of this, a growing number of rich investors are withdrawing money from destabilising countries, and investing in bricks and mortar in prime locations in London. However, transaction levels across the rest of the market are still being suppressed bythe lack of high LTV mortgages available for first-time buyers.

"At a time when wage inflation is being outstripped by inflation, would-be buyer finances are under increasing financial pressure and providing the large deposits required by lenders is unachievable for thousands of potential first-timers.”

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

“The average price of a home in England & Wales fell by a very modest 0.1% in January to £221,211. Despite the falls over the last four months this average price is still some £20,975, or 10.5%, above the lowest price recorded in April 2009 during the last housing downturn.

"With monthly price changes fluctuating around zero for most of the last few months, as transactions reported late to the Land Registry and taken into our index turn marginal gains into marginal falls, there is no immediate evidence of a double dip recession although we anticipate that house prices will fall further in February 2011.

"This is a result of the larger than average increases experienced in January and February in 2010 dropping out from the annual statistics. After the anticipated February decrease, our expectation at the moment is that house prices will remain relatively stable, or show only marginal declines.

“Of course, this picture is in relation to nominal prices, i.e to those actually recorded. When viewed against rising inflation, we can see that house prices, relative to the price of some other assets, have been falling in value in ‘real’ terms. In theory, this should help restore affordability but since wages have also been increasing at a rate below inflation, this adjustment continues to be slow.

“For December, we reported that three regions were recording price falls on both a 3 monthly and annual basis. In January, there were four regions where this was the case – the North, North West, Yorkshire and Humberside and Wales, with all other regions now falling or close to falling on a 3 month basis and with sharp reductions in the rate of annual house price inflation.

"Only Greater London is now showing annual price increases of more than 5%. There is a sense here of gathering momentum around a falling annual index, again partly due to the effect of strong growth recorded in early 2010 which is now dropping out of the figures.

“Much is going to turn on the forward course of interest rates, the economy and the supply of mortgages. With strong inflationary pressures and weak growth, the Monetary Policy Committee has a delicate balancing act to sustain, although the market is now pricing in rate rises through the year.

"Mortgage lending showed no signs of improvement with 42,563 loans for house purchase in December, down from over 47,000 in November and significantly lower than in December 2009. Although total mortgage lending for the year at £136.3 billion was slightly above expectations, it was the lowest annual total since 2000 and there is a general expectation that the total for 2011 will be lower still.

“January is traditionally the quietest month in the year for housing completions and 2011 does not prove to be the exception. We estimate that the number of transactions in January 2011 will be 40,600, which will be the third quietest January since 1995, when Land Registry began computerising its housing data. The two previous Januarys below this level occurred in 2009 and 2010. The current total of 40,600 properties sold in January is 60% of the long term trend achieved over the last fifteen years of 67,910 properties sold in the month.”

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