Mixed messages may cause more turmoil in UK property market
The residential real estate market in the UK is entering a more volatile phase with mixed messages from the latest property indices heralding a slowing down.
Property prices increased 0.6% in July according to the latest figures from the Halifax, which is in contrast to others, that indicate prices are coming down.
A few days ago Nationwide reported that prices had fallen 0.5% in July and Knight Frank’s Prime Central London Index for July showed that prices for prime London property fell in July by 0.5%, the first monthly decline since March 2009.
The up and down picture indicates a definite slowing of the market which is expected to remain largely float for the rest of the year with some parts seeing price declines.
Martin Ellis, housing economist at the Halifax, said that overall there has been little change in prices during 2010 so far and the mixed pattern of monthly rises and falls over the first seven months of the year is consistent with a slowing market.
‘It is also in line with our view that house prices will be broadly unchanged over 2010 as a whole,’ he added.
The Halifax index also shows that the year on year increase in house prices fell to 4.9% in the three months to July from 6.3% in May and a peak of 6.9% in April. The average price of a UK house now stands at £167,425, slightly below where they were at the end of 2009 but 8.3% above their April 2009 low point.
‘House prices are notoriously volatile on a month to month basis and can also be from survey to survey,’ said Howard Archer of IHS Global Insight. He added that the July survey did not fundamentally alter his view that house prices will ease back towards the end of 2010 and are likely to soften slightly in 2011.
The increase in the number of properties for sale over the past few months, boosted by the recent abolition of HIPs, has relieved much of the pressure that was driving up prices in 2009, according to Ellis. ‘Low interest rates and a recovering economy, however, are underpinning demand and continue to support the market,’ he added.
Paul Diggle, property economist at Capital Economics said that monthly house prices were volatile and would continue to be so in the short term. He said July’s increase did not change the likelihood that prices are set for a period of ‘considerable weakness’ in the remainder of this year and into 2011.
‘The weakness in buyer activity, signs that credit conditions may be tightening again, the possibility of renewed weakness in the labour market in the next year and the hit on household incomes that the fiscal squeeze will bring over the next few years, will all weigh on house prices,’ Diggle said.