Sales market 'not waving but drowning'

The housing market is not waving but drowning in some parts of the UK.

Nicholas Ayre, a director of buying agents Home Fusion, was speaking after this morning’s Nationwide house price index showed that house prices had risen fractionally in February, by just 0.3%, to reach an average of £161,183.

He said that pressures such as growing youth unemployment meant that even the smallest hike in interest rates would cause local housing markets to unravel at speed.

The Nationwide index showed that house prices today are just 0.1% lower than this time last year.

However, critics say the survey is based on such a tiny number of sales that it is not particularly meaningful.  

Robert Gardner, Nationwide’s chief economist, said: “The overall picture is still one of a market treading water. Indeed, the three-month on three-month measure of house prices, a better measure of the underlying trend, was basically flat in February at -0.1%.

“This shouldn’t come as too much of a surprise. Housing market trends are closely linked to wider economic prospects. Given that the recovery hit a soft patch at the turn of the year and looks set to remain sluggish in the year ahead, the property market is likely to follow suit, with relatively low transaction levels and prices moving sideways or modestly lower through 2011.

“Demand for homes has levelled out, supported by historically low interest rates and some stabilisation in the labour market. The continued uncertain outlook for the economy is likely to keep many potential buyers on the sidelines for some time yet.

“Nevertheless, there are few signs of a glut of unsold homes building up on the market. Sellers remain reluctant to accept lower prices to secure a sale. In fact there are tentative signs that the volume of homes coming on to the market is slowing.”

Ayre said: “The Nationwide is right that, overall, the property market is treading water, but in some areas of the country the market is drowning not waving. The marginal increases and decreases we are seeing from month to month reflect a market unsure of its buoyancy.

“Also, the fact that nearly one million 18 to 24-year-olds are unemployed will raise questions about the longer-term prospects for the property market with first-time buyers such a crucial element of the property chain.

“Demand for property remains weak due to concerns about unemployment, rising living costs and interest rate rises, which may not be too far off given the minutes of the Monetary Policy Committee’s latest meeting.

“The effects of rising unemployment and interest rate rises will vary from region to region, but in some areas even the smallest rate rise could cause the property market to unravel at a rate of knots. 

“Increasingly, people are questioning whether now is the best time to buy and this, coupled with the still difficult borrowing conditions, is stopping the property market in its tracks.

“Many prospective buyers are putting their purchases on hold, as highlighted by the Land Registry’s figures out yesterday showing a decline in the number of property transactions. This trend will accelerate in the months ahead.”