Demand for housing falls- as do prices

Demand for housing registered its first decline for 3 months. The volume of applicants registering with agents fell by 0.5% over May compared to a 2.8% increase in April, report Ho

Related topics:  Mortgages
Millie Dyson
31st May 2011
Mortgages
Weaker demand is in part related to the Easter and May bank holidays but also reflects weaker consumer confidence over recent months. The volume of sales agreed grew by 1.6% over May, compared to 12.6% in March and 0.8% in April.

Agents will look to reduce prices in an effort to support sales volumes and revenue in the months ahead. The supply of homes continues to rise, growing by 3% over May. Supply has grown by 14% over the last 3 months while demand has increased by 7% over the same period.

The time on the market indicator rose slightly to 9.7 weeks but there are wide regional variations reflecting underlying market conditions across the regions. In London the time on the market (5.9 weeks) is around half the level seen in the Midlands and Northern regions (11.5 weeks).

The divide between London and the rest of the market was more marked in May with prices in London up by 0.2% and down by an average of 0.25% across all other regions. Prices in the west Midlands fell by as much as -0.5%.

Underlying prices are reacting more quickly to changes in demand. The discount between asking and achieved prices is already over 7%. The proportion of the country registering price falls increased to 28% over May. Price rises were recorded in just over 5% of the market, primarily within London.

Richard Donnell. Director of Research at Hometrack, said:

“Demand for housing fell for the first time in 3 months in May putting downward pressure on house prices once again according to the latest survey of 1,600 agents by Hometrack, the property analytics business.

"The late Easter break and May bank holidays reduced the volume of traffic through agents’ offices, but of greater significance is the growing evidence of weakening consumer confidence. With concern over household finances and the wider economic outlook, demand for housing is likely to continue to post further modest declines over the summer.

"This will result in small single digit price falls over the coming months and is consistent with our forecast that house prices will end the year down by around 1%. Within this broad national picture there are a range of variations by both location and market sector.

"The gap in relative performance between London and the rest of the country was even more pronounced this month. Pricing levels across all regions outside London fell by -0.25% in May, compared to -0.2% in April. Yet in the capital values moved 0.2% higher in May as a result of the ongoing mis-match between supply and demand.

"The time on the market indicator provides a barometer of the relative strength of the housing markets across the country.. It shows how in London the average time on the market is less than 6 weeks, while in the Midlands and North the time between a property going to market and going under offer is, on average, over 11 weeks.

"The disconnect between housing market activity in the capital and the rest of the market is set to continue.

"The bounce back in market sentiment over recent months has been driven by continued growth in the volume of sales being agreed which has grown by an average of 15% per month over the last quarter. Yet weaker demand and the late Easter break resulted in sales volumes growing by just 1.6% in May.

"With a slowdown in the number of sales being agreed, agents will look to reduce pricing levels of stock already on the market as a means of maintaining volumes and driving revenue. When demand starts to fall, sellers are typically forced to accept price reductions on their property.

"It is the discount off the asking price that takes the first hit before underlying values begin to erode. However, despite improved market conditions in recent months, a seller today is taking on average a 7% reduction in asking price. This is exposing underlying pricing levels to more immediate price reductions as seen this month across all regions except London.

"Rising levels of supply are also adding to the downward pressure on pricing levels. The supply of homes for sale continues to grow, rising by 3% in May. The last 3 months has seen the supply of property on the market grow by 14% compared to a 7% increase in demand .

"This gap between supply and demand is set to grow further in the months ahead as demand remains subdued and supply expands, albeit at a slower rate.

"From a broader perspective, the health of the housing market over the short term largely reflects households’ expectations for their own finances, the prospects for the wider economy and interest rates.

"Spending cuts and tax changes are clearly impacting on disposable incomes and consumer confidence and the housing market cannot escape the impact of these macro influences.

"Yet there are segments of the market that are more robust than others, largely as a result of limited supply and equity driven demand.”
More like this
Latest from Property Reporter
Latest from Protection Reporter
CLOSE
Subscribe
to our newsletter

Join a community of over 30,000 intermediaries and keep up-to-date with industry news and upcoming events via our newsletter.