House prices are likely to drop another 5% to 10% this year and will only reach their lowest point early in 2010, predicts the Knight Frank estate agency in its latest Residential Market Update.
Rapid falls have ended
But the rapid declines in prices have probably reached an end, says Knight Frank. It warns, though, that the situation varies significantly on a regional basis.
Already average price reductions are levelling-off, with price increases reported in some indices – notably that from Nationwide. The annualised rate of price falls is now 11%, down from 20% earlier this year.
39% fall in Northern Ireland
The picture is far more dramatic in Northern Ireland, where there was a strong price boom as the peace process, the impact of the Irish Republic’s Celtic Tiger economy and the general strength of the housing market combined to drive prices to unsustainable level. They have since fallen 39% from peak levels.
In London, prices are down 20% to 22%, compared to just 16% in Northern England and only 14% in Scotland. Knight Franks says, though, that more homebuyers are showing an interest in house purchases, believing the market is now near the bottom.
This view is reinforced by the latest figures from the National Association of Estate Agents, which reports that its members were selling 30% more properties on average per branch in May than they did last year. They also had, on average, 20% more potential buyers listed on their books.
Conditions improving
“Conditions in the UK housing market have improved considerably over the past three months,” says Liam Bailey, head of residential research at Knight Frank. “The freefall in prices has ended and more recently some house price indices have even started to rise.
“Prices, however, provide only one view: to really understand the health of the market we need to consider transaction levels. It is only when liquidity in the market improves that we will be able to point to a sustainable recovery. While signals from the mortgage market and from completions data are encouraging, this is only a start and there is some way to go before we can say we are on an upward path.”
More flats to rent
Knight Frank is also downbeat about the prospects of recovery in the rental market. It points out that residential rents have fallen by about 6% in the last year, with a big jump in the supply of properties triggering the drop in rents. The number of flats available for rent has risen by 50% to 100%, according to location.
Void periods have consequently also risen and gross investment yields are down to about 5%. Income returns are unlikely to recover until next year, says the firm. It points out that in some areas – parts of inner London and in Manchester, Liverpool and Leeds – almost a third of outstanding mortgages are on buy-to-let properties.
Back to 2005 levels
A similar analysis of house price movement has been published by Acadametrics, which produces the FTHPI report that pulls together information from a variety of indices. Merging the various sources of information suggests that house prices were still falling in May, but by a reduced level at 0.7%.
“The average house price has fallen well below the £200,000 mark and, at £197,145, is now back to where it was in December 2005 – that is more than three years ago,” says Dr Peter Williams, chairman of Acadametrics.
“However, at -0.7%, the rate of decline is a third of the peak monthly fall recorded some six months ago, at -2.2% in November 2008, and the data do suggest that the sharpest falls are behind us and that the rate of decline has now slowed.”
City prices rising
But Acadametrics report again shows an extremely varied picture across regions and types of properties. Despite the generally substantial falls in property values, average prices within the City of London have actually risen significantly: by 14.9% over the last three months.
While this suggests a strong recovery in prime properties servicing city professionals, Acadametrics warns the figures must be treated sceptically. It points out that the very limited amount of residential property in the City of London means that prices tend to be very volatile and can be unreliable.