New homes market performing well in challenging climate

“The slight fall in the average price of a new build home recorded in February is not significant in the context of the wider market. The bad weather at the start of the year delayed a number of new homes launches planned for the start of 2010.

“The market is only seeing minimal month by month change, however, developers are continuing to tread carefully. Anecdotal evidence suggests that, rather than raising prices, developers have been responding to improved economic conditions and growing demand by reducing the number of incentives, a tactic that may in itself serve to reduce headline prices.

“Housebuilders are very much aware of the pre-election uncertainty that may cause the housing market and consumer demand to flatten out in the run up to election day. Lenders continue to look less favourably on new build properties by offering lower loan-to-value mortgages than on second hand homes and sometimes even down valuing against the price of a similar home in the resale market.

“The Government needs to assist the return of higher-loan-to value mortgages at more affordable rates and charges which in turn will allow housebuilders to produce much needed stock as a great number of sales on existing sites complete more quickly.

“Changes in headline prices always attract most attention but the most significant trend in the market over the last 12 months has been the pent-up demand for new homes.

“The disparity between the stock price of a new home and the demand price – the amount that consumers are willing to pay – has averaged over £24,557 in the past 12 months. In February, the difference stood at £32,881, equivalent to an extra 15% on the value of a house. It will be interesting to see if the recent Stamp Duty axing for first-time buyers will have any effect on demand prices in the immediate future.

“Consumers are increasingly realising the benefits of buying a brand new home. Not only do homebuyers think they will have to pay less than they were willing to pay, but new home prices are also showing parity with the price of a second-hand home.

“Developers are increasingly aware of the need to promote the outstanding energy efficiency levels achieved as well as the low on-going maintenance costs. This really will be something to shout about over the next six years as the number of new homes being built to level 3 or greater of the Code for Sustainable homes grows in an attempt to meet Government targets for full zero carbon new homes from 2016.

“Looking at the monthly data, the changes in property type performance need to be seen in the context of the historically low building rates. Given that the figures start from such a low base, the changes seen this month are unlikely to be significant in the context of the wider market, reflecting instead the natural turnover in property as new sites are launched and others are completed.

“A look at the annual figures shows the seemingly large price falls recorded reflecting the volatility in the market in February 2009 rather than any current weakness. Taking the performance of apartments as an example, the annual decline may be -9.4% but the 9 month change is just -0.2% and the 6 month change is +3%. The underlying pattern, therefore, is of slow but steady growth.

“Spring traditionally sees the launch of many new schemes and the rise in stock compared with the previous month suggests that the pattern is set to be repeated in 2010.

“Any rise in stock is to be welcomed, but we must remember that these are still historically low numbers. The need to boost building volumes is without doubt the most pressing issue in the industry, and indeed needs to be considered a priority by any future government.

“February saw many stalled developments across the UK benefit from the first allocations of government money under the much-publicised Kickstart scheme, and this will continue in the coming months. However, the situation in the second half of 2010 is far from clear. Industry has responded with incredulity to the much heralded Conservative party’s solution to the housing and planning crisis which hands local authorities and communities the power to make planning decisions.

“This ‘bottom up’ approach has fanned the flames of ‘NIMBYISM’ – not in my back yard – among the nation’s housebuilders who publicly and privately fear that that local residents’ uninformed objections could result in the construction of new homes grinding to a halt completely in some areas. This could be the outcome in spite of the promise of match funding from central government to local authorities who agree developments.

“The picture from the regions is always diverse as each localised property market has its own distinguishing features with London taking the biggest hit on prices. The extremely low build rate serves only to complicate the picture further – when broken down into regions the statistical effect of such a low base is exacerbated. The natural turnover of sites lends a hint of volatility to the data that does not accurately reflect the reality of local markets.”

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