The latest survey of over 5,000 agents and surveyors showed a slowdown in both supply (-5.4%) - the largest monthly fall for 4 years - and demand (-9.5%). Falling demand in particular is likely to impact on pricing levels over the first half of 2011.
In January 2010 demand stood at -2.7%, a sharp contrast to today’s figure of -9.5%. This suggests that the housing market is facing more fundamental underlying issues than the usual post-Christmas slowdown.
With recent rises in the cost of living, household budgets will only come under further strain if concerns over rising inflation translate into higher interest rates. Mounting concern over a possible interest rate rise will act as a further dampener on demand.
A considerable number of households will not be directly affected by interest rate rises. Two fifths of house sales are driven by cash buyers and Hometrack estimate that over 45% of households who own their home do not have a mortgage. This said all owner occupiers will feel the impact of weaker consumer sentiment.
The supply of homes for sale is likely to dwindle further over the next two quarters. In the short term this will not be enough to offset the downward pressure on prices, but over the course of the year it will begin to act as a support to pricing.
Nationally, house prices fell by -0.5%. The average house price now stands at £153,600.
Price falls were recorded across 37% of the country, compared to 36% in December.
Wide variations in the relative health of the housing market can be explained by different underlying dynamics between supply and demand. The average time on the market in the North and Midlands is now close to 3 months, compared to just over 2 months in the South.
The percentage of the asking price being achieved is falling off a higher base in Southern England although the weakness in pricing is most pronounced in Northern regions.
Hometrack continues to track the performance of housing markets with high and low levels of public sector employment. It is too early to see evidence of spending cuts having a material impact on local markets but this may change over the course of 2011.
