Rate woes hit housing market confidence, but supply constraints expected to support longer term outlook
Long term outlook optimistic as prices are supported by supply constraints
Proportion of people confident that house prices will rise has fallen
Interest rates impact on short term confidence
Brown’s house building policy wins first time buyers’ vote
Forecast house price growth subdued
The proportion of people confident that house prices will continue to rise has fallen marginally from 77% in June to 74% - its lowest level since February 2006 - according to the latest research from propertyfinder.com. Forecast average house price growth over the next twelve months stands at 5% for the second consecutive month.
Affordability issues impact on confidence
The succession of rate rises since last August has impacted upon the confidence of consumers - 81% of respondents blame rising interest rates for their more subdued view. The effects on the housing market of five rate rises in ten months are becoming more pronounced.
However, interest rates are not the only factor affecting affordability. 71% of all respondents and 87% of first time buyers stated that house prices are too high relative to income.
Warren Bright, chief executive of propertyfinder.com, suggests the market is experiencing a natural slow down, caused by rising interest rates:
The price growth we have experienced recently has been exceptional and a period of more subdued growth is to be expected. Home owners have become accustomed to double digit capital growth but these levels are unsustainable. It is only natural that after a period of such rapid growth, we should see a slowdown to bring house price inflation more in line with that of earnings.
Interest rates remain at the forefront of people’s minds. People are being increasingly squeezed by the rising cost of borrowing – it is time for the MPC to stop turning the screw.
Prices buoyed by lack of supply over medium term
Consumers remain confident that a lack of supply will continue to buoy house price growth over the medium term – although at a more subdued level.
The research indicates that Gordon Brown’s increased house building targets will be a very popular move with first time buyers – 40% of who stated that house prices are rising because too few new homes are being built.
Warren Bright concluded:
Our new prime minister has clearly set out his legislative plans with a vote winning agenda. His well publicised intention to build more affordable houses will appeal to the growing number of young people who are being priced out of the housing market.
