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Assetz House Price Watch No evidence of a Market Crash as House Prices Continue to Flat Line

Assetz House Price Watch is the only fully inclusive summary of all the major UK house price indices, providing a comprehensive overview of market activity

The five major UK house price indices show an average of 1.7% annualised growth for the twelve months prior to April 2008. This shows a decline in the annual rate of growth recorded in March 2008 (3.6%) and a 9.7% decrease from the April 2007 annual growth rate of 11.4%.

While annual house price growth declined in April, monthly house price data (showing short term trends more clearly) offers a different perspective. Data showing three month average house prices reveals a steep rise throughout 2006 and into early 2007 but this is proving very stable now in 2008.

Considering the house price highs of the last few years, this recent stabilisation is a necessary correction, with typical annual rises of 10% or more not sustainable over the long term. When looking at average house prices themselves, prices were just £458 lower in April than the January figure of £211,472 (0.5% lower). 

No evidence of a market crash…
Property prices have remained firm since the beginning of the year, with a current average of £211,014 in April – down only £4,015 (1.9%) from the peak experienced six months ago – £215,089 in October 2007.

The average house price in April 2008, taken from the average price provided by all five major indices showed a decrease of just £915, compared with the previous month’s average figure and an increase of £2,279 in the twelve months from April 2007, when the average price of a home was £208,735.

Halt in new-build schemes is good news for buy-to-let investors’ rental income and will support prices for all…
With most housebuilders putting new development starts on hold for the foreseeable future, the production of new homes is set to fall even further below Government targets. Developer incentives and discounts will continue for a few months as developers attempt to clear existing stock but this is unlikely to have any significant effect on average house prices. House price growth flat-lined in April for a third consecutive month and house prices are expected to remain robust as a lack of supply continues.

The excess demand for housing is currently directed at the rental sector, causing rents to soar, rather than house prices at present, as difficulties in the mortgage market persist. As a result, rents are rising at historically high levels, providing excellent returns for buy-to-let investors.

Bank must not use recent spike in inflation to hold interest rates…
The Bank’s Monetary Policy Committee (MPC) stalled on a drop in interest rates in May following a 0.25% cut in April. With mortgage lending down 48% since the same time last year, this came as a further blow to homeowners and the mortgage market as a whole.

Stuart Law, Chief Executive of Assetz, comments:

“While house prices fell by 0.6% in April, prices remain up on the previous year and I am yet to see any firm evidence of a housing market crash. We saw a steep increase in house prices leading up to a peak in October last year. This was widely regarded as an unsustainable level of growth and we are currently embedded in a period of stabilisation, throughout which house prices in this country have remained extremely robust in spite of the difficulties in the mortgage market – down only 1.9% in April since the highest recorded average, taken in October last year - a far cry from the property crash that many commentators are misleadingly quoting.

“Over the long term, demand for housing will continue to outstrip supply and with Government targets of three million new homes by 2020 now looking impossible, as a number of housebuilders announce a halt to new starts, this will support future house prices and rental growth.  The mortgage market problems (and to some extent the uncertainty over the housing market) is at present causing significant pent-up demand from first-time buyers, and once the mortgage market frees up I expect this demand to return strongly.  The effect of this release of demand back into the purchase sector will probably surprise many, supporting house prices and even causing them to grow again in due course.

“The risks to house price stability over the coming months are primarily driven by the mortgage market. However, with announcements from some mortgage lenders that they are now reducing their mortgage rates, movement should return to the market and we should soon return to a degree of normality, perhaps as soon as September.

“Some commentators think that the reducing demand for new build is a result of low demand for housing, but one only has to look at the huge rental growth to understand that the excess housing demand is currently focused on rental rather than purchase. However it will revert back to home sales in due course - not only supporting house prices but also driving them forward again. For the time being however, tenants will continue to shoulder their share of credit crunch costs, with rents rising at historically high levels. Paragon recorded a rise of 4% in the first three months of 2008 and I am prepared to increase my forecast for rental growth for the year as a whole to 15%.

“The Bank of England must not use the spike in inflation announced this month as an excuse to hold back interest rate cuts again. Payable interest rates are significantly higher than base rates, and lowering the base rate by over 1% would still leave the rates paid by consumers and businesses at such a level to hold back inflation. In addition, many of the inflationary effects are imported and raising interest rates would be pointless, especially bearing in mind that wage inflation is still very much under control.

“We are revising our forecast of base rates from 4.75% down to 4% at the end of 2008, as we believe there is far more stability for the Bank of England than people think. In addition, Gordon Brown is showing a real willingness to interfere with the Bank of England's independent remit, and following recent comments, it would be no great surprise to see control taken back in the short term for political purposes.”