Following a considerable shift in sentiment in the housing market over the past few months (which has seen prices starting to pick-up in some areas), RICS no longer expects house prices to fall by 10% in 2009, as predicted at the start of the year. Instead, it now looks likely that the average house price in 2009 Q4 could be slightly higher than in 2008 Q4.
However this does not indicate a quick return to the boom time, as activity remains very weak by historical standards. Mortgage approvals have gradually improved recently in line with the increase in new buyer enquiries, documented in RICS Housing Market Survey, and this relationship suggests that demand is strong enough to push approvals up to around 55,000 per month, where they could stay through to the end of the year. This would still leave transaction levels well below the long-run average as a significant increase in approvals is still being hampered, at least in part, by the limited availability of mortgage finance.
A return to a more orderly market is still some way off. The RICS Housing market survey shows that the new instructions balance has been in negative territory for 26 consecutive months, and this lack of supply has been giving some support to house prices in recent months. In addition, while buyer demand has improved, further increases in mortgage rates, rising unemployment or prolonged weakness in the economy could all challenge the emerging recovery in the market.
Meanwhile the lack of new housebuilding, which was already a major cause for alarm, has been exacerbated by the recession - housing completions in England could come in at around 75,000 this year. Failing to address this issue will add significantly to affordability pressures in the future.
Commenting, RICS senior economist Brigid O'Leary said: "There has been a clear change in the housing market over the past few months and, as a result, it is unlikely that we will now see the kind of house price falls widely predicted at the start of the year. Instead, the return of buyer demand and the limited availability of housing on the market could be enough to support prices so it wouldn't be surprising to actually see prices increase further from here in the short term. That would be consistent with more positive expectations that have been reported in recent RICS Housing Market Surveys.
"However, the outlook for 2010 is fairly uncertain and there is a real risk that prices may slip back again. Affordability is still stretched and mortgage finance, while improving, is fairly hard to come by. The positive news we have seen has been a recovery from record lows and there are still many uncertainties in the economy. In particular, we are concerned about the mortgage finance environment and the impact of further increases in unemployment on house prices."
