Asking prices rise 2.6% since last month but this masks a rise of 3.0% in the first 4 weeks (as the Springtime surge continued), followed by a fall of 0.4% or £683 in the final week, as 4 interest rate rises start to bite.
Greater London and the South East lead the downturn, as prices in the capital decline for 3 weeks in a row.
This report is compiled from asking prices of properties put on sale through Rightmove estate agents from 9th May to 12th June 2004 (5 weeks) – a sample of approx. half the market
THIS MONTH SEES THE FIRST CLEAR, QUANTIFIABLE SIGN OF A SLOWDOWN IN HOUSE PRICES – albeit based on a one-week decline in asking prices in the first full week of June, the final week of the June Index: this is the only measured weekly fall in prices so far this year. Rightmove’s figures, based on asking prices, provides the earliest indicator of price trends, with indices based on lenders’ data and completions lagging by several months.
Average asking prices across the country FELL by 0.4% or £683 in the first full week of June (6th to 12th), having continued their strong surge for the first 4 weeks of the 5 week period covered by this month’s Index. As a result, prices still rose month-on-month, by 2.6% or £5,003, bringing the average price to £193,965 – just short of the peak of £194,648 recorded a week before.
Miles Shipside, commercial director of Rightmove, comments: “Over the month, prices are up again, but close analysis provides evidence that the market may have turned. The impact of four interest rate rises – including two on the bounce in April and May – is beginning to bite. Right up till the end of May the boom continued unabated but, come June, the market seems to have turned and we’ve seen the first price falls since the usual seasonal slowdown last Christmas. The drop of £683 may not be huge, but if it’s a sign of what’s to come, it could be very significant.”
In addition, the number of properties for sale on agents’ books is growing, easing the stock shortages which had been driving up prices rapidly all year. Miles Shipside continues: “Since earlier this year, agents have over 10% more properties on their books – which may not seem a huge increase, but is important at a time when the number of buyers actively looking is on the wane.
On top of that, Rightmove now has a record properties 370,000 on the site, providing further evidence of a build-up of supply and an ebb in demand. People are starting to focus on Euro 2004, picnics in the park and summer holidays, so moving house is moving towards the back of their minds. Add to that the rise in borrowing costs, and we’re seeing the long expected slowdown in the market. It’s looking increasingly like a steady and orderly slowdown – the so-called ‘soft landing’ that some people have said is not possible.”
The late decline was not enough to reduce the annual rate of house price inflation, which rose again from 15.6% in May to 17.2% in June.
The softening of average property prices began in Greater London, where prices fell for 3 weeks in a row – by 0.5%, 0.7% and by 1.6%. While asking prices continued to rise strongly up until 22nd May (up 3.5% in total), these falls eroded the gains so that, over the whole period of the Index, asking prices in the capital were up just 0.6% between May and June.
Miles Shipside again: “The slowdown looks as if it’s starting in the capital and spreading out. Prices have been declining in London for 3 weeks – giving a total fall of almost £8,400 from the peak – and in the last week of our Index the South East caught the same trend, with a small decline of 0.7% or almost £1,800. Three other regions have seen falling prices recently, Wales, the North West and West Midlands, making five in all. If this trend continues, we could be seeing the beginning of a sustained slowdown. However, with interest rates remaining low by historical standards and confidence high, my expectation is that the cooling of the market will be steady and gradual rather than sudden and dramatic. Time will tell, and the Rightmove Index will be the first to provide concrete evidence one way or the other.”
The turning market – by region
In all regions of the country, asking prices rose strongly in the first 4 weeks, but some declines were registered in half the regions in the final week (6th to 12th June). The weakness appears to be spreading from London and the South East although, apart from London and the South East, falls were mostly seen on the western side of the country.
Notwithstanding the price falls in the final week, all regions saw significantly rising prices over the whole period, with Wales up 6.2% to £165,332, the North up 4.3% to £138,985, the North West up 4.2% to £153,849, the South East up 3.0% to £238,263, and East Anglia also up 3.0% to £187,184.
Over the past year, the market has remained strongest at the lower end of the market, with terraced properties (now worth an average of £151,881) up almost 20%, while more expensive detached properties (worth £279,383) have risen by a smaller, but still very healthy, 15.7%. This reflects the findings of the Halifax and Nationwide indices which, being predominantly based on mid market lending, show annual price rises around the 20% mark.
However, the declining prices seen in the final week of the Index were more accentuated at the lower end of the market, with terraced properties down 0.8% or £1,200, more than other property types. Miles Shipside says: “As we all know, it’s the first time buyer who’s been struggling most over recent months to get on the housing ladder and it’s no coincidence that it’s the terraced home, the typical first time buyer property, that has started to see a slight easing of price. It’s the first time buyer who is most affected by rising borrowing costs.”
“Mervyn King and the other members of the MPC may well breathe a sigh of relief that there are, at last, some tangible signs that the market is reacting to the latest interest rate increase and is slowing in an orderly way. Hopefully, this may help remove one of the pressures for further rises in borrowing costs in the coming months.”
