"This reverses some of the rise seen in March, but is in line with our expectations, given the current economic conditions. April’s decline leaves the average price of a typical house at £151,861, down 15% from 12 months ago. The three-month on three-month rate of change, generally a smoother indicator of the short-term trend in prices, improved to -3.1% in April
from -4.1% in March.
"The Chancellor announced several measures aimed at boosting the housing market in his Budget. The scheme for Government guarantees for new, high-quality residential mortgage-backed securities is welcome and may help to boost the amount of mortgage credit available.
"However, since the availability of credit is only part of the reason why the housing market is in the doldrums it is
unlikely to lead to a swift turnaround in its fortunes.
"Lenders have already indicated that the availability of credit is less of an issue than it has been, but at the same time expect that the demand for secured lending will fall further. Given the weakness of the economy and the expected further
increase in unemployment this comes as no surprise.
"The extension of the Stamp Duty holiday is also welcome in so far as it reduces the transactions costs for borrowers at the least expensive end of the market. While there has been no further increase in the amount of the tax-free threshold, the impact of falling prices since the initial extension was announced in September 2008 means that more buyers could now benefit.
"Before the increase in the threshold the typical house price was above the old £125k limit everywhere except the Northern
region. As house prices have come down, the typical house price is now below the new £175k threshold everywhere but in London and the Outer Metropolitan region. And for first-time buyers, only London has a typical house price above the threshold.
"It is possible that the extended period of the higher threshold will be more of an incentive for first-time buyers to enter the market now that affordability has improved due to falling interest rates and house prices. But it seems more likely that, for the most part, buyers will remain cautious as long as they think that prices will continue to fall. The latest data from Nationwide’s Consumer Confidence Survey shows that consumers still think that prices will fall over the next six months.
"However, there has been a significant moderation in the rate at which they think prices will fall. This, along with the
recent pick up in buyer inquiries and the increase in house purchase approvals in February, has encouraged some to suggest that this is the turning point in the market. While affordability is indeed more favourable and there does seem to be some cautious optimism from some quarters, it is still far too soon to say that this is the start of a solid revival in the market.
"The housing market is very sensitive to income and, as a result, conditions in the labour market are crucial to its performance. The economy is now in the deepest recession since the Second World War and unemployment is continuing to increase, with the latest data showing that it breached the two million mark. Even though negative inflation will mean that real earnings will be increasing, it is likely to be some time before this feeds into a strong enough change in sentiment to encourage a full scale revival in the housing market.
"That said, the correction in house prices and improved affordability conditions provide a good grounding for the market once domestic and global economic conditions once again become more favourable."
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