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Assetz House Price Watch January 2008

Assetz House Price Watch is the only fully inclusive summary of all the major UK house price indices, providing a comprehensive overview of market activity

The five major UK house price indices show an average of 5.5% annualised growth for the twelve months prior to January 2008. This shows a 0.8% decrease in the annual rate of growth recorded in December 2007 (6.3%) and a 5% decrease since January 2007 (10.5%).

Sustainable level of price growth as 2008 begins…

The year’s first annualised figure for house price growth was recorded as 5.5% in January, already in line with the 5% level, earmarked by Assetz as the sustainable level for 2008. The extent of the recent slowdown is reflected in a full 5% decrease in the annual level of price growth from this time last year. However, an eventual and significant slowdown was always necessary, with previous levels of above 7% unsustainable in the long term.

Residential property ‘good as gold’ while all else stutters…

With the credit crunch causing prices to fall dramatically across a number of markets, gold and residential property appear to be the only investment asset classes to remain largely unaffected. The UK residential market has barely wobbled in the last six months with residential property down on average just 1.5% from the highest level in 2007 and still up 5.5% since last January, while the prime commercial property market has temporarily collapsed, as has the stock market. Residential property returns are now well ahead of the stock market for almost any measured period.

The only way is up as housing supply is squeezed further…

There are little signs to suggest the UK is anywhere close to hitting Government housing targets for at least the next few years to come. The imbalance between supply and demand is the fundamental factor that continues to support the residential market. The official shortfall in properties being built versus demand is 80,000 units per year and with developers indicating a fall in housing starts for 2008, this deficit looks set to worsen as restrictions from NIMBYism, local planning constraints and development finance limitations continue to reduce supply. This will lead to a continuation of house price growth and significantly greater demand than supply for years to come.

Strike now while the iron is hot…

Buyers are currently being lured to the market by low prices and a range of developer incentives as they react to short-term jitters in the financial market. The influx of people to the market has not been lost on home sellers and Rightmove data shows a strong upturn in vendor sentiment at the beginning of January with the latest February data (not yet in our index) showing an increase in asking prices of 3.2% in just one month. The Rightmove index is a useful leading indicator of what will happen with the other price indices in the following months, and recent data suggests price rises are imminent.

Long overdue drop in interest rates as Bank stutters into action…

After making the industry wait for an additional month, the Bank’s Monetary Policy Committee (MPC) had little option but to drop the interest rate base level to 5.25% in early February. The decision to hold rates in January was exposed as another irresponsible gamble following the stock market plunge seen towards the end of the month and its delayed reaction is likely to result in a series of further cuts this year, with another possibly as soon as April.

Average UK house prices …

The average house price in January 2008, taken from the average price provided by all five major indices was £211,472, down from £212,145 in December 2007. This shows a decrease of £673 in the value of the average property and an increase of £10,338 in the twelve months from January 2007, when the average price of a home was £201,134.

Stuart Law, Chief Executive of Assetz, comments:

“A very minor decline in the average UK house price in January shows the market is probably levelling off. The average monthly rate of growth across all the indices was a mere -0.2% in January, compared with -0.6% and -0.8% in December and November respectively. This indicates the buoyancy of the UK residential market and is evidence that the downturn seen in recent months is simply part of a stabilisation process and not a market crash as has been touted by some. At Assetz we have stood by our prediction of a 5% level of price growth for the year 2008, and we expect to soon see a return to upward movement in the market before the spring. Prices are already starting to increase in some indices and the latest indicators point to a sustainable level of growth for the foreseeable future.

“The property sector has remained a good investment so far in 2008, proving its mettle even at a time of financial crisis in other sectors and rubbishing claims of an imminent market crash. Residential property is the clear winner of the mainstream investment classes, with the turmoil of the credit crunch causing prices to fall in areas of commercial property as well as the stock market. The supply/demand imbalance is simply not going away, and is even showing signs of worsening in the short to medium term, making prolonged price falls an unrealistic outcome and many will be surprised by a return to house price growth later this year.

“First time buyers still have a golden opportunity to strike while the iron is hot, and make the most of low prices and incentives from some anxious developers and private vendors. However, this buying opportunity will not last forever, and could be over by the time summer arrives as prices start to rise again as developers and vendors increase in confidence.”