House asking prices rise 0.6% in August

Modest monthly increases continue as average asking prices rise by 0.6% (£1,473), according to the Rightmove House Price Index.

Rightmove have now seen sellers adopting more reasonable pricing expectations over the last four months. This month’s rise of 0.6% is the fourth time sellers have pitched their prices at less than 1% above the previous month, a pattern not seen since January 2006. Should this trend continue, it would be consistent with the annual rate of house price inflation becoming more closely aligned with annual wage inflation, currently running at around 3% to 4%.

Rightmove measures the asking prices of circa 90% of properties that come onto the market with estate agents in England and Wales, giving the largest and earliest indicator of current market conditions. We have seen four months of modest house price growth and, combined with the wider economic data, this suggests that overall inflation is easing back and leads to the conclusion that the pressure on the Bank of England to raise interest rates again is reducing significantly.

Miles Shipside, Commercial Director of Rightmove comments: “This is the first time for over a year and a half that we have seen four consecutive months of such moderate increases. This much slower rate is consistent with prices and the market starting to adjust to the increased costs of home ownership. It finally paves the way for a return to a sustainable market without the need for further interest rate rises, though many buyers will still face affordability problems”.

A further early indicator of the future direction of the property market is the first monthly fall in London’s average asking prices since August 2006. The fall was slight at just 0.1% (£462), but is put into context by the fact that London prices have risen by an average of 2% a month for the last 12 months. The strength of the London market has been one of the main driving forces behind the rise in national average prices. London’s annual rate of increase is currently 23.4%, and is nearly double the national rate of increase which stands at 12.8% this month.

Miles Shipside comments: “This fall is the first we have seen for some time and is an early warning signal that even the buoyant London economy is susceptible to market forces. The capital and international status of London means that prices are likely to be more resilient in the longer term, unless the current turmoil in the financial market undermines employment and wealth creation.”

Asking prices appeared to have peaked in July 2004, but the London ‘mini boom’ helped drive average national prices up by a further 23%, an average of £45,262, over the next three years. The latest evidence seems to indicate that we have now genuinely reached the limit of buyers’ ability to afford higher prices in current market conditions.

Sellers now have to set asking prices to reflect local buyers’ affordability restrictions. This is resulting in some fluctuations in monthly regional prices as sellers have to gauge local supply and demand to find the new levels at which buyers can afford or will be tempted to purchase. In spite of only 148,000 properties coming onto the market in this month’s survey, the lowest since the beginning of the year, stock levels per estate agent have remained static. This indicates a correspondingly low level of property coming off the market due to subdued sales. A further indication of the slowing market is the average time on the market that has jumped from 80 to 85 days this month.

Miles Shipside adds: “Whilst a slower market is to be expected in the summer holiday season, it shows that the balance of power has switched from seller to buyer in most parts of the country. This could swing even further in buyers’ favour if the current credit tightening reduces lenders’ ability to provide mortgages at the rates achieved in recent months. This may lead to slight increases in mortgage rates even without another rate rise by the Bank of England.”