Supply/demand imbalance impacts house prices

Demand for housing dropped for the second month in a row in August by 2.2%, as the supply of homes for sale jumped 2.4%, according to Hometrack.

While the decline in demand is in part seasonal, Hometrack said the underlying trend for the last six months has been downwards.

In contrast, the rate of new homes coming to market is well above average for August, which has an average growth rate of 0.8%.

Hometrack figures showed that over the last five months, housing supply has grown 14% while demand has fallen by 2%, driving down house prices.

Hometrack's survey of more than 5100 agents and surveyors showed that, on the back of the supply/demand imbalance, average house prices across England and Wales fell by 0.3% in August.

Regionally, prices were down across 30% of the country compared to 12% in July and 2.6% in June.

In Wales, prices were stable, while the South East and North West recorded the largest monthly declines of 0.5% each.

Prices in London have fallen for four consecutive months and declined by 0.4% in August.

Richard Donnell, director of research at Hometrack, said:

"The housing market is in the process of a modest re-pricing that is likely to run for the next six to 12 months. This follows a period of 18 months over which house prices have firmed rapidly on the back of a potent mix of rising demand and a chronic lack of housing for sale."

He said signs of a slowdown and property price falls had been building since the General Election in April.

Donnell said: "Firmer pricing and the abolition of Home Information Packs (HIPs) have resulted in a surge of new properties coming to the market. But while the removal of HIPs has allowed sellers to once more put their homes on the market at no cost, so the commitment of vendors in agreeing to sales at realistic pricing levels, remains questionable.

"The unmistakable fact is that the availability of homes for sale has improved markedly and this has reduced the support for house prices provided by the scarcity of housing for sale over 2009 and early 2010."

He said that the increasing weakness in demand was more than a seasonal blip, but added that the number of sales being agreed has continued to increase in recent months:

"This has given agents a level of confidence over the sustainability of pricing levels despite growing concerns over the outlook."

Nevertheless, Donnell said:

"In August the growth in sales agreed slowed, rising by just 0.8% compared to an average increase of 6% per month over the last six months. While this may be a seasonal trend, we expect lower sales volumes to continue, not least because much of the new supply is reliant on strong offers being achieved."

Hometrack figures showed the proportion of the asking price being achieved fell to 93.5% in August from a high of 94.3% in June 2010, and, as demand weakens, this figure is expected to move lower.

The time on the market indicator has also started to rise, increasing to 8.9 weeks from a low of 8.3 weeks in May 2010.

Donnell said: "Against a background of a longer sales period, rising supply and faltering demand, prices need to adjust to a level where sales volumes can be maintained. We expect further modest price falls in the coming months."