This is the biggest reduction in asking prices we have measured so far this year, and follows on from the drop of 0.6% in July.
Miles Shipside, director of Rightmove comments:
“No one really wants to come to market in August unless they have to. It shows these new sellers have a compelling need to sell, as they have lopped over £4,000 off the average asking price.
"Those who marketed earlier in the year but have yet to find a buyer may have to do a bit of pruning of their own to beat this new competition. Holidaying buyers can relax on the beach while back at home sellers are reducing the cost of their future property by the price of the family holiday.”
August and December are the two months of the year that traditionally see price falls. However, it should be noted that this is the second consecutive monthly fall in a year that, until July, had only seen rises. Following gains of 7.0% from January to June, prices have now fallen back by 2.3% in the last two months.
We predict that the gains made so far this year will have dissipated by year end, although there could be some individual monthly rises in the more active months of September and October. However, market conditions bear some similarities to the second half of 2008.
Then prices fell by 7.1% between August and the end of the year as buyers unwilling or unable to proceed left agents with unsold stock levels similar to those currently being recorded by Rightmove.
Shipside adds:
“There needs to be a spur to cause prices to rise. However, as mortgages won’t become available to the masses and last year’s stock shortages show no sign of re-appearing, we can’t see it happening during the remainder of 2010.
"You don’t need to be a fortune teller to predict what cards a seller can play to find a buyer. Unless their property is a bit of a rarity, the only cards left are the ones that read ‘chop the price’ or ‘spruce up the presentation'."
Average available property per estate agency branch went up again last month, the sixth consecutive rise, providing further evidence of supply continuing to outstrip demand. It now stands at 79, up from 77 the previous month. New stock advertised on Rightmove is now at an average weekly run-rate of 29,220.
This comes against a backdrop of June’s mortgage approvals (as reported by the Bank of England on a non-seasonally adjusted basis) at an average weekly run-rate of 13,852. Rightmove’s new listing figures are down by 5.4% on July, but up 41.3% on the same period last year.
Mortgage approvals are up by 13.8% on the previous month, yet are down 3.6% on the same period in 2009. While some property is withdrawn from the market and not every buyer has a mortgage, the imbalance between mortgage and stock availability remains painfully clear.
Shipside comments:
“The number of sellers coming to market is the highest seen in the month of August for three years. New seller levels seem to be getting back to a degree of pre-credit-crunch normality, but mortgage levels have a lender-imposed ceiling. Its restricted height is giving the market a long-term headache as pent-up buyer demand continues to bang up against it.
"For the market to gain some more headroom we need to see mortgage approvals running at over 50% of new listings. However, for the last few months this figure has struggled to consistently hit 40%.”
Pent-up buyer demand is illustrated by a new all-time high of daily activity on Rightmove’s website, with a seemingly counter-cyclical 25,413,442 pages viewed on August 10th. In addition, the number of pages of property viewed in July was up 14.5% on the same period last year.
The prospect of prices readjusting downwards over the next few months obviously improves expectations of affordability for future buyers. However, the timing of the anticipated rises in base rates will also be part of their thinking. In the latest Rightmove quarterly Consumer Confidence Survey, six out of ten renters stated that they would like to buy but cannot afford to.
With the Bank of England forecasting that inflation will continue to exceed the Government’s target throughout 2011, borderline buyers will be hoping that the inevitable rate rises hold off as long as possible. The timing quandary they face is that rate rises may push some owner-occupiers’ personal finances underwater, especially if their incomes have suffered in the downturn.
This could lead to an increase in distressed sellers, though the window of opportunity where the lowest base rates and cheap property deals coincide may remain firmly shut for the depositpoor.
Shipside concludes:
“The next twelve to eighteen months could provide a window for those who can just meet minimum deposit and creditworthiness criteria, as affordably low rates and lower property prices could marry up. In addition, a period of higher inflation that outstrips flat or falling property prices makes buying even cheaper in real terms as long as your salary is going up in line with inflation.
These are the conditions that over a few years could herald a sustainable housing market recovery based on higher buyer volumes as opposed to stock shortages. This would provide a solid foundation for the property price pendulum to swing back up, fuelled by growing household numbers, lack of newbuild and easing in mortgage availability.
"As always, deposit–rich buyers will remain in the driving seat, and an increase in interest rates will keep the less creditworthy buyers from returning to the market. If you can’t raise a beefy deposit, cheaper property prices won’t help you much.”
