With such low transaction volumes, asking prices do not necessarily reflect the market fundamentals, so continuing demand for good quality property in better areas and a lack of pressure to sell have enabled prices to appear to defy gravity. New sellers’ asking prices are now only 1.5% below May 2008’s peak of £242,500, although the recent resurgence of inflation means that they are down by around 10% in real terms.
Miles Shipside, director of Rightmove comments: “The Bank of England’s decision to hold interest rates at unprecedented low levels, compared to all other property market downturns, has disrupted the traditional economic formula of an excess of supply over demand leading to lower prices. It has thrown some sellers a lifeline in their quest to hold on to the gains they made during the boom era, though the market has failed to build up a head of steam due to continuing red signals from mortgage lenders, and the normal spring momentum being diverted into a siding by the warm weather and the Royal Wedding.
One interest rate rise won’t immediately derail the market but if we see several in quick succession it will quickly hit the buffers.”
Rightmove’s asking price statistics include all properties that will be bought by cash purchasers. They therefore reflect the total market, including the more active cash buyer sector where desirable properties in limited supply still enjoy upwards price pressure compared to the mortgage-constrained mass-market. The wider market remains weak in volume terms, and open to activity distortions such as the recent spate of bank holidays. The lack of listings coming to market during the extended bank holiday period for Easter, the Royal Wedding and May Day no doubt had an effect on new sellers’ asking
prices, as a slump in seller numbers leads to some estate agents competing for new instructions by agreeing to market at unrealistic prices. The weekly run-rate of new instructions prior to the Easter holiday was circa 29,000. In the two week period between the holidays this fell by 30% to an average of just 20,000, resulting in higher average asking prices for properties coming to market in the latter part of the period.
Shipside comments: “Agents rely on fresh property stock to give them a more dynamic shop window and capture potential buyers’ attention. With new seller levels down some 30% over the extended holiday period, there seems to have been a knee-jerk reaction pandering to sellers’ pricing aspirations rather than accommodating the reality of low buyer numbers. With buyers also distracted by the attractions of bank holidays and warm weather, and viewing royal weddings rather than property, these sellers could miss out on the rapidly closing spring window of moving activity by pitching onto the
market at near-record asking prices”.
This is the longest period that base rates have remained unchanged since the 2nd World War era of 1939 to 1951. Then base rates were held at 2%, considerably above the rate of 0.5% that is helping today’s sellers to ignore continued low mortgage lending levels. This property market downturn is different to all others, with low interest rates helping to support property prices in many parts of the country. In the last major downturn of the early 1990s, interest rates of up to 14.875% forced a more rapid price correction. Average unsold stock levels are rising as sellers can take more time to wait for the offer they believe is out there, especially with lenders showing continued willingness to keep those in arrears in
their homes. Average properties for sale per estate agency branch have thus reached the highest level recorded by Rightmove in the month of May. They have risen from 74 to 76, and in spite of this increased competition, new sellers’ average asking prices are near their all-time high.
Shipside adds: “The increase in agents’ property stock levels combined with a reduction in the number of properties coming to market suggests that the number of buyers has fallen even faster than the number of sellers, and transaction volumes will therefore remain low as we move into the traditional summer slowdown. Estate agents usually see their stock turnover more quickly during the spring, but this year’s slower market suggests that stock levels may exceed Rightmove’s previous record of 79 properties per branch over the next few months.”
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