A minority (34%) now expect house prices to fall over the next twelve months, while the majority (54%) expect prices to rise.
The market is stabilising as respondents now expect prices to slip just 0.3% over the next 12 months compared to a sharp drop of 7.7% in April. April’s confidence was severely, but temporarily, hit by the general election effect which propertyfinder.com’s research (‘Pre-election Blues, Post Election Bounce’ March 2005) demonstrated is a regular feature of the housing market at election time.
Further evidence of stabilisation comes from analysis of the views of buyers compared to sellers. Both groups maintained very similar views on the outlook for house prices until September 2004, at which point buyers became markedly more pessimistic than sellers. A widening gap between the two groups signified stalemate in the market as overly optimistic sellers consistently overestimated the health of the property market while buyers sat on their hands. Now the gap has begun to narrow again, the market can look forward to healthier levels of activity.
More evidence that buyers and sellers are finally beginning to see eye to eye again can be seen in the discounts buyers are demanding versus the discounts sellers are prepared to offer. Sellers on average say they will entertain offers 4.4% below the asking price. Buyers, who have consistently demanded greater discounts in recent months than sellers were prepared to accept, in May were making offers 4.6% below the asking price, very much in line with sellers’ expectations. To put this in context, the gap of 0.2% is now a mere £360 off the average house price.
There has been a dramatic turnaround in expectations for interest rates since the Bank of England’s Monetary Policy Committee voted to hold rates at the beginning of May. Fears of higher interest rates climbed sharply until May when they subsided rapidly. Only a minority of those negative on the housing market now expect interest rates to rise. People now believe the Monetary Policy Committee has grasped what they knew all along – that the economy had responded to the rate increases of 2004 and no more action is required.
The survey evidence of an improvement in househunter expectations is reinforced by activity on the propertyfinder.com website. Visitors to the site increased 30% between March and the end of May 2005 while the number of e-mail enquiries per property delivered by propertyfinder.com to the estate agent marketing the home rose 17%. The number of potential buyers clicking through to the estate agent’s own site from the property listing on propertyfinder.com rose 15% over the same period.
Jim Buckle, managing director of propertyfinder.com explained: "The housing market is stabilising and the stalemate between buyers and sellers is finally beginning to dissolve. Greater activity on our website is a further sign that conditions are improving. We don’t see a return to boom and confidence is likely to fluctuate in coming months but a crash is clearly off the cards.
"Fears over interest rates have been driving expectations for the housing market. These fears were exacerbated in April by the imminent general election and confidence plummeted. Our research published at the time explained how the housing market always suffers before an election only to recover afterwards and our May survey demonstrates that 2005 is no different.
We expect house price indices to begin to show this greater stability in coming months as these househunter expectations feed through into offers and transactions, provided the Bank of England does not see fit to tighten the interest rate screws any further. We are sticking to our own forecasts for interest rates to end 2005 at 4.5%."
