Welsh house sales drop off by 17.5%

Richard Sexton, director of e.surv, part of LSL Property Services comments on the latest Welsh house price index.

Related topics:  Legal
Amy Loddington
27th June 2012
Legal
-House prices decline £400 month on month

-However prices are up 1.1% on last year

Richard said:

“A combination of a constrained mortgage market for first-timers and adverse weather conditions dampened housing market activity in April. Several parts of Wales saw twice the normal amount of rain in April, restraining buyers’ enthusiasm for viewing properties, and this has hampered competition for properties on the market. However, the longer-term effect of the absence of thousands of first time buyers - still struggling to secure mortgage finance - continues to be felt throughout Welsh housing market, reining in house sales and keeping prices deflated on a monthly basis. As a result, transactions fell by -17.5%. This is more than three times the seasonal drop we would normally anticipate.

Lenders are facing strong pressure on their ability to lend, as a result of the ongoing financial crisis abroad, and have adopted an incredibly cautious stance towards those without substantial deposits and spotless credit. As a result, many Welsh first-time buyers may feel that homeownership is a distant reality. Nevertheless, some relief may come from the Bank of England’s new funding for lending, which, if successful, could allow mortgage lenders to pass on more affordable rates to new buyers.

While house prices in Wales dropped by £400 on a monthly basis, the annual improvement points to resilience in some parts of the market. Wealthier buyers and equity-rich retirees remain a key driving force, with activity at the top end of the market comparing favourably to a year ago, after the trough caused by the new, higher stamp duty on purchases over £1 million.

The buoyancy of the upper tier of the market was reflected in the regional disparity of annual house price rises. Those with the highest average prices - Monmouthshire and the Vale of Glamorgan - saw the largest increases, while Blaenau Gwent, with the lowest average price, saw the biggest fall - highlighting the two speed nature of the Welsh housing market.”

Dr Peter Williams, housing market specialist and Chairman of Acadametrics, comments:

"The average house price in Wales was £400 lower in April than March, a fall of -0.3% over the month. However, on an annual basis, prices have risen by +1.1%. To understand why the annual figure is up, whilst the monthly figure is down, we need to look at the housing market in Wales in February, March and April last year. Readers may recall that the Chancellor had announced that the stamp duty on properties costing £1 million or more was to increase by 1% from 6 April 2011. This resulted in buyers at the top end of the market bringing forward their purchases to the early months of 2011. Average prices in February in particular rose against trend by 0.5%.

In April 2011, once the tax had been introduced, purchasers of high-priced properties became conspicuous by their absence, with a consequent fall in the average price of a home of -1.3% in the month. By April 2012, the top end of the market had returned to more normal levels, so average prices have increased over the year, particularly when compared to April 2011.

One of the features of April in Wales has been a decline in the number of properties sold amounting to a fall of -17.5% from March levels. On a seasonal basis the number of properties sold in Wales typically falls by -5% during April, so this year the market is more subdued than usual. Some of the decline in sales can be explained by an absence of first time buyers, who continue to find it difficult to obtain mortgage finance, which has a knock-on effect all the way up the property chain. The weather in April will also have had an impact on the housing market, with twice the normal amount of rain falling in South Wales and towards the English Border, making April 2012 amongst the wettest Aprils on record.

Looking at the seasonal trends in the Welsh housing market, one can normally expect sales volumes in May to pick up by 10% from April levels. It will be interesting to see whether May, this year, will follow tradition, or whether a more deep seated malaise has taken root. Early indications suggest that activity has increased, but we will have to see whether this has been sustained throughout the month.

It is interesting to observe that the two areas in Wales where average house prices area highest, namely Monmouthshire and the Vale of Glamorgan, are in the top three areas in terms of price growth. This is a trend which also applies in England where demand and, hence, prices have been strongest at the top end of the market. Apparently, existing owners are using the equity in their properties to upgrade their homes over the period, whilst new entrants at the lower end of the property market have found it difficult to raise the necessary finance to get started. Hence, the areas with the highest priced homes have tended to see prices rise, or to remain stable, whilst the areas with lower priced homes have continued to see price falls.

In terms of rankings over the last six and a half years, Swansea has moved up five positions, followed by Wrexham up three places. The largest faller is Conwy down four places. Of the 22 local authority areas in Wales, 9 have seen house prices increase over the six and a half years and 13 have seen falls.

In our analysis of average house prices we express growth or decline in money terms. It is perhaps a sobering process to remind oneself that RPI over the period from December 2005 to April 2012 has risen by 25%, so expressed in real terms house prices in Wales have fallen by between -12% and -36%. In real terms, the FTSE 100 has dropped by -24% over this period, indicating that investing in the stock market would have earned similar returns to housing, but without providing a roof over one’s head."
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