First fall in house sales
A new house price survey has shown that the number of house sales agreed this month has fallen for the first time since January 2004.
The Hometrack July survey shows a 0.1 per cent fall in average house prices across the country, with the number of sales falling by 1.8 per cent.
In a further sign that the market may be cooling, the survey shows a four per cent fall in new buyers and a rise in the average time taken to sell a house.
Hometrack has reduced its house price inflation forecast to five per cent from eight per cent, saying that they believe the market “is now approaching its peak”.
“We still do not anticipate a housing market crash, expecting zero house price inflation for 2005.”
Rising house prices have been one of the major headaches for the Bank of England’s Monetary Policy Committee (MPC) as they seek to balance interest rates. In June the Governor of the Bank of England, Mervyn King, took the highly unusual step of publicly expressing his fears about house prices.
Speaking at a dinner at that time, Mr King noted that house prices have more than doubled over the past five years, and said: “This sustained increase has repeatedly confounded expectations and taken the ratio of house prices to earnings to record levels.
“Demographic factors, a shortage of housing supply and low levels of inflation and interest rates, all mean that the sustainable ratio has probably risen somewhat over the past decade. Nevertheless, it is now at levels which are well above what most people would regard as sustainable in the longer term.
“After the hectic pace of price rises over the past year it is clear that the chances of falls in house prices are greater than they were.”
John Wriglesworth, Hometrack’s housing economist, said: “Rising interest rates and speculative fears of a housing market crash has resulted in falls in house prices across many parts of the country. The largest falls were mainly recorded in the South East and Central Midlands, whereas counties on the outskirts of the country have maintained their upwards momentum.
“We anticipate that a ripple of negative price changes will spread out over wider regions of the UK, as the full effect of the most recent interest rate rises have not yet fed through to the market.”
He took issue with Mr King’s comments, saying: “Further interest rate rises or sabre-rattling speeches from the Governor for the Bank of England could risk an even more marked downturn in the housing market and we urge the members of the Monetary Policy Committee to resist this.”
The MPC are due to meet next week to review the level of base rate, which currently stands at 4.5 per cent. Last month the committee voted unanimously against raising rates, noting there have been ” further tentative signs of a slowdown in the housing market.”
However, many analysts predict a rate rise is likely this month to counter fears of inflation.
