Optimism among buyers as prices and transactions are up

The number of housing transactions in February increased by 2.4% to 41,200 – but this is still only 61% of the long term average.

Dr Peter Williams, Chairman of Acadametrics, said:

“The average price of a home in England & Wales rose by a modest 0.3% in February to £222,456 (see Figure 1) building on the 0.2% rise in January. Over the last twelve months, prices have risen in six months, fallen in five and remained flat in one. On an annual basis, this month’s figure is down £1,037, or -0.5%, on the average price of February 2010.

“In the intervening months between February last year and this, we have seen the average house price fluctuate between £224,072 and £221,249, a maximum change of £2,823, or 1.3% over the year. Given that in the last six months of 2008, during the depths of the housing recession, average prices were falling by a monthly rate of -1.7%, we can see how relatively stable the current market has become, with little change in house prices being observed month on month.

“This month’s annual rate of change in house prices of -0.5% is the first time we have seen the rate go negative since October 2009. However the negative figure this month is more to do with a large monthly increase of 1.6% seen in February 2010 dropping out of the statistics, to be replaced by the more modest 0.3% increase this year, than with any significant turnaround in the market. We anticipate that the annual rate in the change in house prices will fluctuate around zero for at least the next few months.

“As ever the movement in the ‘average’ house price for England and Wales as a whole masks the different behaviour patterns occurring in the regions. As we show in Figure 5 on page 6 prices in the north of England, Wales, the Midlands and East Anglia are now falling, whilst in London and the south of England they continue to rise but at a slowing rate.

“For January, we reported that four regions were recording price falls on both a 3 monthly and annual basis. In February, there were seven regions where this was the case – the North, North West, Yorkshire and Humberside, East and West Midlands, East Anglia and Wales. Only Greater London, the South East and the South West are now showing annual price increases. There is a sense here of a gathering momentum around a falling annual index; however fluctuations around zero % are likely to become the norm for most of the regions as the effect of strong growth recorded in early 2010 drops out of the figures. Any further prognosis must be on the downside.

“Overall, the LSL/Acadametrics index for February 2011 paints a picture of a market that continues to experience modest monthly changes in prices but with strong regional and local variations. In that respect it is very much in line with other indices as evidenced by the Comparison of Indices on page 5. Prior to Easter, we are expecting to see the National Statistician publish her final report on house price and wider housing market statistics heralding we hope a more definitive stance on the use and quality of house price statistics.

“There is little in the wider environment from which to take comfort in terms of the future direction of prices. The government has argued the case for house price stability but there are major question marks as to whether its current plans will achieve anything more than is currently the case. Expectations regarding interest rate movements still point to rises through the year but events keep impacting upon the possible timetable. The FSA’s recent Retail Conduct Risk Outlook (http://www.fsa.gov.uk/pubs/other/rcro.pdf) points to the scale of uncertainty and vulnerability in the system at present. It is certainly going to take time for the underlying drivers of this environment to become less powerful.”

Richard Sexton, business development director of e.surv said: "After falls throughout the final quarter of 2010, prices have been bolstered by strong demand in London and the South-East. The best performance has been in the market for prime property in London and the south-east, but there are also encouraging signs from the mortgage industry which could bring about a more widespread and sizeable recovery. The proportion of mortgage products requiring more than a 25% deposit is at a 2-year low and many of these new products are for high LTVs. Nevertheless, product numbers alone can be misleading. Lending is still constraining demand as mortgage lenders are concerned about the possibility of rising unemployment as the public spending cuts continue. These concerns are particularly focused on areas with high levels of public sector employment, such as northern England and Wales.

“However, the fact that prices are rising shows there is plenty of pent-up demand in the market. Currently, a large proportion of buyers are those able to muster sizeable deposits, but if the economic horizon clears and the barrier of tight lending criteria is lifted, we could see both demand and prices pick up relatively quickly. As the big price gains seen at the beginning of 2010 have dropped out of the figures, annual growth has slipped into negative territory and until mortgage lending gathers pace we can expect further falls in the annual rate of growth in 2011.”

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