A report from Nationwide show that house prices rose for a second time in three months.
- House prises rose by 1.2% in May
- Annual rate of decline improves sharply from -15% to -11.3%
- Low supply levels may explain some of the improvement in price trend
Commenting on the figures Martin Gahbauer, Nationwide’s Chief Economist, said:
“The price of a typical house rose by 1.2% in May, providing further evidence of some improvement in housing market conditions over the past few months. The average house price is still 11.3% lower than a year ago, although this marks a significant improvement from the annual decline of 15% recorded in April.”
“Although the short-term trend in house prices has clearly improved from where it was at the beginning of the year, it is still too early to say that the market is turning definitively. During the downturn of the early 1990s, there were many months during which prices rose, only to fall back down again in subsequent periods. In the current down, the combination of rapidly rising unemployment and tight access to credit implies that the last of the price declines has probably not been seen yet. Nonetheless, the improvement in house price trends is consistent with signs of stabilisation in several other economic indicators and suggest that any further price declines may occur at a less rapid pace than in 2008.”
Supply dynamics may explain some of the recent improvement in house price trends
“The movement of house prices ultimately depends on the balance of demand and supply of houses on the market. House sales still remain close to record lows, so that the improvement in the supply-demand balance is so far mostly attributable to a decline in the stock of property on estate agents’ books. There are several possible reasons why stock levels are falling. First, the rate at which additional property is coming onto the market could be lower than the rate of sales. This may be the case if many potential sellers are holding back from putting their homes on the market for the fear of not being able to obtain their desired price in the current economic conditions, or if few new home are being built. The later is certainly the case , as builders have retrenched and housing starts have reached all-time record lows. Second, unsold stock levels could fall if existing sellers give up and withdraw their properties from the sales market, either by letting them out or choosing not to move for the time being. Recent evidence suggests that there has been a large rise in sellers choosing to let their properties instead of holding out for a buyer, which could explain at least part of the fall in stock levels.
“There are reasons to believe that low stock levels are unlikely to continue in the long run. Potential sellers of existing homes who had previously delayed the listing of their property may not be able to wait indefinately, particularly if they have seen a loss of income due to the deteriorating labor market situation. The recent widely reported increases in new buyer enquiries may also encourage more of thses reluctant sellers to test the market in the coming months. Moreover, the surge in “reluctant landlords” has increased the supply of property in the rental market and pushed down rents, making it more difficult for existing sellers to pursue the option of letting their properties out if they can’t sell. Trends in the rental market and their potential inpact on supply levels in the sales market will, therefore, be worth watching closely.
“if the supply of homes onto the market does increase, house prices may start to fall again. However, the ultimate outcome for prices depends as much on the development of demand as it does on supply dynamics. Survey evidence suggest that buyer interest has picked up strongly in response to lower prices and lower interest rates. If this buyer interest translates into actual sales and outweighs any potential increases in supply, then the recent moderation in price falls may continue. For the moment, however, it is unclear how the balance between supply and demand will ultimately work through in the coming months.”
Well, what this tells me is that although sentiment and confidence has improved it is still unclear whether the housing market has bottomed. Estate agents are saying that house prices are on the rise and we’ve certainly been the busiest we’ve been for months in terms of arranging mortgages, but all said and done - I’m not holding my breath!
Capital and liquidity still remain a challenge for lenders. Subsequently lending supply remains much reduced from levels that would meet overall demand. This of course continues to present some very real challenges for lenders where they have to make decisions on how to release funds.
