The five major UK house price indices show that the rate of growth is dropping back with an average of 10.1% annualised growth for the twelve months prior to July 2007 - a 1.1% decrease in that of the previous month (11.2%) and a 2.6% increase since July 2006 (7.5%).
While house price growth continues at a high level, currently still over 10%, in July it fell back to the lowest annualised rate seen so far in 2007. This stabilisation was widely expected, following the steady climb earlier in the year and yet another rise in interest rates.
In July, figures from Rightmove displayed a dramatic fall in asking prices, echoing the fall experienced in May, which took place before the introduction of HIPs was delayed until August – reflecting an oversupply of property at these times as vendors rushed to market their properties, ahead of its introduction.
The tactics used by the Bank of England to justify its recent rate rises were brought to the foreground in early August as inflation fell below 2%. This, the largest drop for over five years, was greeted with surprise from almost every economist, in spite of long-running predictions from Assetz that this was to be expected considering July’s history of negative inflation rates, combined with the recent interest rate rises.
This has brought the welcome boost homeowners had been waiting for, with rates now expected to freeze, if not drop back in early 2008. The Bank of England has reacted to short-term inflation figures in a state of near panic whilst continuing to say it is only trying to manage long term inflationary pressures.
The average house price in July 2007, taken from the average price provided by all five major indices is £211,555, up from £211,483 in June. This shows an increase of just £72 in the value of the average property in the last month and an increase of £19,275 in the twelve months from July 2006, when the average price of a home was £192,280.
Stuart Law, chief executive of Assetz, said: “As anticipated, the average rate of property price growth began to show signs of falling back this month slightly, although annual price growth is still exceeding 10%.
“However, with no chance of any short or even medium term solution to the housing shortage, there is little cause for concern. While Rightmove figures reported a significant fall in asking prices in July, this was to be expected considering the recent weather conditions, the usual summer holiday slowdown and yet another rise in interest rates. However, data taken from sale prices on the other major indices in July offer a more realistic outlook, with less dramatic falls fluctuating between just 0.1% and 0.5%.
“Five rate rises in twelve months were bound to take their toll eventually, although the supply/demand imbalance remains the catalyst driving the market forward, as we have stated repeatedly for the last two years. Having issued scare-mongering warnings over inflation as justification for its numerous interest rate hikes since the latter half of 2006, the Bank was exposed this month when the CPI index dropped suddenly to 1.9%, breaching its 2% target. This came as a welcome boost to new homeowners and tenants, who can now expect some reprieve, having felt the full force of the latest rises in their monthly outgoings.
“The Bank of England has clearly reacted to short-term inflation figures in a state of near panic, whilst continuing to say it is only trying to manage long term inflationary pressures. I do not apologise for being the Bank’s harshest critic this week and we will soon see if the MPC committee has just been lucky with low inflation over recent years, or whether it really holds the management skills it proclaims.
“We are likely to now witness a stabilisation in interest rates, with a downward turn a realistic possibility for the not too distant future. House sales should now pick up as consumer confidence increases and inflation begins to stabilise annual price growth to around 8% by the autumn.
