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Emerging signs of price resistance in London as house prices move higher in April
Commenting on the latest monthly national housing survey, Richard Donnell Director of Research at Hometrack - the residential property analysts - said:
“House prices increased by 0.6% in April, unchanged over the month. Demand (up 3.3%) continues to grow faster than supply (up 1.9%) maintaining the supply/demand imbalance that underpins the upward pressure on house prices. London continues to register above average growth (0.8%) but market conditions continue to strengthen in the regions outside London, particularly southern England.
Nationally, the average time on the market is down to 6.3 weeks, the lowest since June 2007. While the outlook is for further price increases there are emerging signs of growing price resistance in London which could check the rate of house price appreciation in the coming months.
The continued improvement in market conditions across the wider housing market is demonstrated by prices increasing across 48% of postcodes outside London over April – this is the highest coverage of price rises for a decade (June 2004) and is three times higher than the level seen a year ago (16%) - Figure 1. The pick-up in the coverage of price rises is very clear cut after six years of falling then static prices although the extent of price rises is starting to plateau.
Download the PDF to view full results of the April survey.
Improving market sentiment and low mortgage rates are supporting increased activity. The time on the market indicator delivers a strong indication for the overall health of the market and this measure has declined below 10 weeks across all regions (figure 2). The greatest declines in the time to sell over the last year have been seen in East Anglia, South East and Wales. In the North and Yorkshire & Humber the decline has been less marked and price rises remain below average.
In London, the impetus for above average house price growth is originating from the lower value markets that offer relative value for money - South East London, for example, has an above average rate of growth (0.9%) and one of the lowest time on the market levels nationally at 1.9 weeks.
However, the latest survey reveals early signs of growing price resistance in the London market in the face of recent, rapid increases in residential values.
While these changes are from levels that indicate very strong market conditions, they suggest that buyers are starting to become less willing to bid up the cost of housing at recent rates. Widespread media speculation over the sustainability of price increases in the London housing market is likely to be having an impact on sentiment. The supply of housing for sale in London is starting to rise off a low base– up 2.5% in April compared to 1.9% nationally. New supply at very full prices will only exacerbate the sensitivity of buyers to pricing levels in the market.
It is important to remember that London has seen a pick-up in house prices that has been running for the last 4 to 5 years, starting in the central London market. The regional markets have only started to register a sustained pick-up in activity and prices for the last 15 months with the turnaround starting in January 2013.
The impetus for house price growth looks set to continue to transition into the regional housing markets over 2014. What is less clear is the scale of pent-up demand that exists to sustain further house price increases with signs that the coverage of price rises outside London is starting to plateau. A continued improvement in the economic outlook and incomes growth is essential to sustain improved levels of market activity but the outlook for interest rates and the willingness and ability of households to take on mortgage debt are the factors that will influence the outlook over the medium term.
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