John Wriglesworth analyses the latest batch of economic data and attempts to answer the $64,000 question: what does the housing market have in store for 2005?
House prices have recently been a hot topic of conversation, with speculation mounting over the future direction of the market in 2005. Following a sharp fall in July last year, doomist economists predicted a substantial crash wiping more than 20 per cent off the value of property. We have subsequently witnessed over six months of continuous gradual house price falls. However Hometrack’s monthly price index has reported a drop of just 0.2 per cent in February, showing that prices are beginning to level out.
Registration increase
Compounding the first signs of recovery this month, buyers have returned to the market in force. Hometrack reported an increase in new registrations of 28.5 per cent, indicating that buyer confidence is definitely increasing. The National Association of Estate Agents (NAEA) reported a stable number of buyers in the market, with the number of new applicant enquiries increasing by over 130 per cent.
Supporting these findings, Propertyfinder, a property website, has also revealed that consumer confidence in the market has improved sharply since the lowest point in November, when 72 per cent of all respondents expected prices to fall. Now 58 per cent expect them to rise, but buyers’ optimism has improved far more slowly than sellers’.
While this increase in buyers registering is mostly a seasonal effect, the size of the increase suggests a revitalisation in the market. This is also confirmed by an increase in transactions this month. According to Hometrack, agreed sales rose by an incredible 36 per cent from the previous month, and the average time taken to sell has fallen for the first time since May 2004 to 7.6 weeks.
Sales prices
While the supply of properties listed has also increased, by a substantial 19.8 per cent, the discounts buyers are achieving from asking price has decreased slightly. Average sales price as a percentage of asking price rose to 93.3 per cent, the first rise since April 2004, indicating that buyers are negotiating discounts of over 6 per cent. According to the NAEA, the average discount negotiated has come down from 5 per cent last month to 4 per cent this month. This indicates that the market is beginning to tighten.
Alongside easing price falls this month, more counties reported rises and stable prices. Seven counties reported price increases and 13 remained static. The counties at the top end of the scale were South Lincolnshire (0.3 per cent), Surrey (0.3 per cent), Greater Manchester (0.2 per cent), Birmingham (0.1 per cent), and Devon (0.1 per cent). The counties reporting the largest price falls were Leicestershire (-1.3 per cent), East Riding of Yorkshire (-0.9 per cent), Staffordshire (-0.7 per cent), Merseyside (-0.6 per cent) and London – East (-0.6 per cent).
First signs of recovery?
After over eight months of housing market doldrums, the first signs of a robust recovery have appeared. A significant rise in new buyers, and a further marked increase in agreed sales have stabilised prices. An analysis of recent trends suggests the worst is definitely over in terms of price falls. We expect prices to resume their long-term inevitable upward movement before the end of the year, fully compensating for the recent falls.
A more stable interest rate outlook, ongoing low unemployment, and rising household incomes will all help support rising house prices by the end of the year. Commentators forecasting a housing market crash will soon have to again revise their forecasts, as the reality of a healthy housing market will undoubtedly increase the amount of egg that they already have on their faces.
New home prices
Supporting Hometrack’s report of increased consumer confidence in the market, SmartNewHomes.com, the new homes website, reported that although prices for new homes have decreased slightly, homebuyers are consistently willing to pay higher prices for new homes, indicating that the market will see positive growth in the coming months.
David Bexon, chief executive of SmartNewHomes.com, comments: “This month’s index shows that homebuyers are still willing to pay more for new homes and there is much scope in the market for strong activity. We are expecting this to translate into a positive 2005 with prices increasing, albeit at steadier levels. Concerns that the market may be in decline are unfounded and couldn’t be further from reality.”
Stabilising
Hometrack forecasts a stabilising in house prices this year, with average property values finishing the year pretty much as they began. We will see both upward and downward price fluctuations on a monthly basis but must resist the temptation to signify a trend on the basis of any one month’s reporting.
Looking to the future, ongoing earnings growth, increasing employment levels and a rising population will all support housing demand. The long-term trend for house prices to rise in real terms is set to resume. Since 1956 the average growth in house prices over any ten-year period is a staggering 150 per cent according to Nationwide Building Society. The minimum growth over ten years was 12 per cent (1989-1999). History backs the market optimist.
John Wriglesworth is managing director of the Wriglesworth Consultancy
