"This has been very much driven by ongoing stock shortages with supply in central London still a third down on the medium term average," said Lucian Cook, Director of Residential Research at Savills. "Set against buyer demand levels, there is no sign yet of the prices rises seen in the closing months of 2009 being reversed."
New buyer registrations in January were 16% above the monthly average in 2009 and, while sales agreed were below the monthly average because of seasonality, they were still 20% ahead of the January average for 2003-2007 relative to the level of stock on the market.
Prime central London house prices rose by 4.6% in the last quarter of 2009, bringing the total bounce from the bottom of the market (March 2009) to 13.4%. Cook said: "Our forecast remains for prime central London values to fall by 1.0% over the course of 2010, but the early indications from the market are that we could well see further price rises in the short term, driven largely by those with equity or bonus money competing for a small pool of good properties."
Jonathan Hewlett, Head of Savills London said: "The low level of good stock is really underpinning commitment from buyers. Many sellers are choosing to stay out of the market in anticipation of further price rises, and buyers clearly believe the prime London market has a robust future. In the short term this dynamic will help sustain current values."
Prime southwest London, the market that led the current recovery process (with values +18.3% in 2009 and +4.9% in Q409), saw demand relative to supply consistently running at more than 150% of the 2003-2007 average in the second half of last year.
Cook said: "Here there are early signs of demand beginning to plateau. In particular, higher prices – in some cases back to peak – have encouraged sellers into the market and this has reduced stock shortages.
"The Savills demand index has dropped to a more stable 116 which indicates that last month relative demand was 16% above the average for January. This suggests that the levels of price growth seen in this market in 2009 cannot be sustained in 2010."
Lindsay Cuthill, Head of southwest London, said: "The key issue here will be seller expectations. We are under pressure to launch properties at a 5% or 10% premium to December 2009 launches. With stock levels rising, the ambition of sellers to push prices even higher could drive a wedge between buyer and seller expectations, unravel buyer demand and stall the market."
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