House price declines continue but households upbeat

Any figure under 50 indicates that prices are falling, and the lower the figure, the steeper the decline. Any figure over 50 indicates that prices are rising.

Property values were perceived to have fallen in ten of the 11 regions this month, but most of these regions reported a slowing in price declines, according to the survey of 1,500 households. The sharpest declines were in the North West (41.4) and the East Midlands (41.4). But those living in London reported that the value of their property had risen (55.1).

Since the inception of the HPSI, the index has been a clear lead indicator for house price trends. Figure 3 shows that the index moves ahead of mainstream house price indices, confirming the advantage of an opinion-based survey which provides a current view on household sentiment, rather than historic evidence from transactions or mortgage market evidence.

The future HPSI (figure 2, attached PDF), which measures what households think will happen to the value of their property over the next year, climbed strongly in March, hitting the highest reading since July 2010. Nearly a third of households expect the value of their home to rise this year, up from 26% in February. Some 23% of households said they anticipate a fall, giving a reading of 54.3.

Households in six of the 11 regions expect the value of their homes to rise over the next year. Households in London (65.2) expect the strongest rises, with those in the East of England (56.2), the South East (60.2) and the South West (58.1) also expecting prices to climb. Sentiment about future house prices has also risen sharply in Wales (55.1) and Scotland (56.3). But households in the Midlands and the north of England are more downbeat, with those in the North East (43.6) expecting the biggest falls in the value of their home over the next 12 months.

Those working in the private sector (56.1) are much more upbeat about the prospect of house prices rises over the next year than those working in the public sector (51.4), although this is the first time that the index for public sector workers has risen above 50 in six months.
 
There was a sharp bounce-back in the outlook for house prices among those who work in the financial and business services sector. They expect the biggest house rises over the next year, with a reading of 65.9, up from a record low of 43.1 in January. Those working in the construction sector (60.2) are also expecting prices to rise appreciably over the next 12 months. Those working in the retail sector (44.2) are the least optimistic about house price movements, expecting bigger falls in the next 12 months than in February, when the reading was 49.7.
 
Both homeowners and those living in the rental sector (as well as those living rent-free at home), expect prices to rise over the next year. Those who have a mortgage on their home expect the biggest rise (55.3) followed by those who own their homes outright (54.5).
 
GrĂ¡inne Gilmore, head of UK residential research at Knight Frank, said: “The overall outlook among households for property prices over the next 12 months has picked up strongly, with the highest future HPSI reading in nearly two years. This coincides with economic news hinting at some ‘green shoots’ of growth, and positive mortgage lending figures, signalling at a slight loosening in the constricted mortgage market.
 
“But behind the figures, there is still evidence of the ‘multi-speed housing market’. Households in the Midlands and the north of England still expect the price of their home to fall over the next year.
 
“This trend reflects that seen in the latest unemployment figures, indicating how perceptions of regional employment prospects are interlinked with confidence about the future movement in house prices.
 
“There was a noticeable bounce-back in optimism among those working in the banking and financial sectors in March, in contrast to the slump seen in January. This coincides with announcements of bank profits and bonus payments, which, in contrast to speculation in January, were healthier than expected.
 
Chris Williamson, chief economist at Markit, said: "The recent air of gloom hanging over the housing market appears to have lifted further in March. People’s views on the likely value of their properties in 12 months’ time were the most optimistic since July 2010, with sentiment rising markedly compared with February.
 
"The brighter outlook for house prices is probably attributable to a number of factors, including the recent improved news-flow on the domestic economy and the euro area debt crisis. Recent data has indicated a reduced likelihood of the UK facing a double-dip recession, while the positive news on the Greek debt crisis has helped restore some confidence to the financial markets and banking system. These developments should help improve both the demand for housing and the availability of mortgages.
 
"The upbeat mood is by no means universal, however, with optimism about prices biased heavily towards London and the South East. In contrast, pessimism remains widespread in the north of England and the Midlands, where unemployment remains high and property markets typically see less interest from overseas buyers."

Have your say on this story using the comment section below