Shortage of homes for sale expected to push up prices by end of the year

Published 06th Aug 2009

An acute shortage of homes being brought to the market will push property prices up this year as bargain-hunters vie for the best deals, a leading estate agency body forecast yesterday.

But it warned that the market had not yet hit the bottom and that prices could start falling again next year as more homeowners are expected to put their properties on the market.

The prediction came as Halifax, Britain’s biggest mortgage lender, said that property values jumped by 1.1 per cent in July, adding nearly £1,800 to the price of an average home.

Sellers have been deterred from putting their homes on the market over the past year as prices slumped and buyer interest dwindled.

But there has been growing evidence of buyers fighting over what little stock there is on the market, with many sales going to sealed bids, a process not seen since the peak of the housing market two years ago. The Royal Institution of Chartered Surveyors (RICS) said yesterday that house prices would end this year between 1 and 2 per cent higher than last year as buyers bid up the cost of scarce properties. Such a rise would add more than £3,000 to the price of the average home.

The National Association of Estate Agents said that the rising interest from cash-rich buyers, who can provide the hefty deposits being demanded by lenders, has even helped to overcome the traditional summer slump. The average number of properties sold per agent eased only slightly to nine in July, down from ten in June.

But RICS said that prices would fall again next year, possibly by 5 per cent, as increased buyer interest tempted more homeowners to sell. A 5 per cent drop in prices would wipe nearly £8,000 off the price of an average home, taking average values back to 2004 levels.

Brigid O’Leary, senior economist at RICS, said: “The outlook for 2010 is fairly uncertain and there is a real risk that prices may slip back again. In particular, we are concerned about the mortgage finance environment and the impact of further increases in unemployment on house prices.”

Unemployment, which has already climbed by 700,000 to 2.3 million since the recession began in April last year, is forecast to peak at more than 3 million next year.

City economists said that while there were fragile signs of life in the market, a marked recovery was still not on the cards.

Howard Archer, chief UK and European economist at IHS Global Insight, said: “While it is possible that April marked the trough in house prices on the Halifax measure, we suspect that they will be prone to relapses over the coming months and we certainly do not think that a sharp sustained upward trend in house prices is in the process of developing.”

However, there was some cheer for homeowners as Halifax said that house prices were 0.8 per cent higher in the three months to July compared with the previous quarter. This is the first quarterly rise since the housing market began falling in autumn 2007.

The annual pace of decline in prices also slowed to 9.9 per cent, the smallest fall since June 2008, and down from 18.9 per cent in December last year.

Halifax also revised its housing forecasts after better-than-expected July housing figures. It expects that prices will fall by a further 7 per cent before bottoming out later this year or early next year. It had previously forecast that prices would fall by 15 per cent this year.

The more upbeat news on the housing market comes just a week after Nationwide, another leading mortgage lender, indicated that prices climbed for the third month in a row in July and also suggested that prices could register an annual increase by the end of the year.

Source: ' Times '

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