"This brings the price of a typical house to £150,946. The moderation in the annual rate of fall is somewhat distorted by conditions last year and so it would be unwise to draw strong conclusions from the significant slowdown in the annual rate of fall. Equally, while the rise in prices in March is welcome, it is far too soon to see this as evidence that the trough of the market has been reached.
"The Bank of England has already taken strong measures to ease the tensions in economic and financial markets by cutting rates and commencing quantitative easing. However it will take time for these to work through into the housing market before we can expect a sustained recovery in house prices.
"Mortgage approvals have started to increase after reaching levels which were thought out of the question two years ago. February saw the number of monthly approvals increase to 37,900, its highest level since May 2008. This is still far below the long run average of the series which started in 1993 of 94,000 per month, but is a significant improvement on the average for the second half of 2008, which was only 32,000.
"The upturn is welcome and is certainly a signal that there is some movement in the market. The sales-to-stock ratio, which is a good indicator of movements in house prices, has begun to stabilise in 2009.
"However, it is still too soon to say that this will be the beginning of sustained house price rises and a reflection of a wholesale return of confidence to the market. The ratio remains at very low levels and house price expectations are still very weak.
"The current upturn in activity is therefore more likely to reflect the return of buyers who have delayed purchasing through the worst of the financial turbulence at the end of 2008 rather than the beginnings of a swift recovery. Nevertheless, the willingness of borrowers to return to the market is encouraging and likely to in part reflect the falling cost of borrowing.
Flat prices more volatile than other property types
"Although the prices of all types of property have fallen significantly since the autumn of 2007, there are some interesting differences within the headline numbers which may shed some light on the dynamics of the market. Whilst the price of the average house has declined by 19% since the peak of the market, detached and semi-detached properties have fallen by 16% and 18% respectively, and the price for flats has fallen by 22%.
"Although this indicates that flats are suffering disproportionately in the current downturn, it is important to consider their relative performance over the whole cycle.
"There could be many reasons for the relative volatility in the price of flats over the longer term. It is likely that the lower absolute cost of such properties make them more attractive to investors and speculators who enter the market when prices are rising rapidly, but who then drop out when prices are falling and are expected to decline further.
"Given the relative price of flats they are also more likely to be purchased by first-time buyers, which can be shown by comparing the similar movement in the price of flats and that of the typical first–time buyer property. The greater volatility in prices could be due to fears of being priced out of the market causing borrowers to rush in on the way up
and affordability constraints biting more severely in this sector of the market on the way down, particularly given deposit constraints. First-time buyers may also have greater discretion about when to return to the market in the light of market conditions, whereas seasoned buyers may have more pressing concerns, such as job or family requirements, which are detached from the housing cycle."
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