The balance of confidence in the market has tipped markedly towards the pessimists. Between January and April, on average 84.3% of assertahome.com’s respondents believed house prices would rise over the following twelve months. In May this dropped sharply to 77%. Chart 1 shows the trend of gradually eroding optimism since the beginning of the year.
Despite recent commentary to the contrary, it is clear that househunters have indeed noticed the recent increases in interest rates. Between January and April 2004, half of the house price optimists cited continuing low interest rates as a key reason to explain their optimism. In May this dropped sharply to 40%. By the same token, the growing minority of respondents who believe prices are going to fall are increasingly blaming rising interest rates. 70% of these pessimists now think rising rates will push the market into a downturn compared to an average of 57% between January and April.
Additionally, half the pessimists now believe property investors bailing out of the market will contribute to a downturn compared to just one third in the previous 4 months.
Jim Buckle, Managing Director of assertahome.com said: ‘Househunters across the UK still overwhelmingly expect house prices to continue rising over the next twelve months, but those in the pessimist camp are steadily growing. Optimists and pessimists alike, however, are now far more acutely aware of the role interest rates are going to play in the direction of the housing market in the year ahead than they have been since the interest rate cycle turned at the end of November.
‘Our survey shows that housebuyers and sellers have clearly taken note that interest rates are on the up and this has begun to dent confidence in the housing market. Thursday’s interest rate increase can only accelerate this process. The Bank of England should beware of overly aggressive interest rate hikes.’
The South East of England has shown the most dramatic drop in confidence and languishes far at the bottom of the league. In May just 68% of South Eastern househunters expected prices to rise in their region. This is less than the national average and far below the bullish Yorkshire and Humberside where 93% are optimistic about the outlook for the next twelve months in their region.
South Eastern househunters expect a meagre 0.8% increase in prices compared to 10.9% in Scotland and 10.3% in Yorkshire and Humberside. Chart 2 shows the differing confidence levels and house price forecasts by region. The northernmost parts where the market has been most active of late remain the most confident.
Overall the nation’s househunters expect house prices to rise 6.6% over the next twelve months, down slightly from their April forecast of 6.7%.
Jim Buckle adds: ‘Househunters clearly do not expect the current heady pace of house price growth to be sustained and expect the market to slow down over the next twelve months. Regional expectations vary widely with those in more northern regions, where the market has been the most active, still more confident than Southern regions who have seen a quiet market for some time now. The South East is especially gloomy and has been the first region to begin feeling the pinch of higher interest rates.’
Meanwhile the multiples of their household income that househunters are prepared to pay increased again in May to 4.7x from 4.6x in April and from 4.1x in January. This month on month increase is exactly in line with the increase in house prices reported for May. Chart 4 shows the multiples buyers in each income bracket are prepared to pay since the beginning of 2004. Chart 4: National House Price / Household Income Ratio (by Household Income Band)
Jim Buckle commented: ‘The month on month increase in the multiples of income buyers are prepared to pay for a new home reflects the growth in house prices in May and highlights how household incomes are unable to keep pace with the value of houses. This factor is contributing to the decline in confidence househunters have in the market.’
