House price bubble accelerates

By Nick Booker, Staff Columnist
Published 27th Nov 2006, (a Monday) at 09:00AM
www.in2perspective.com

The UK housing market is now growing at its fastest pace for two years. Further confirming the behaviour to be expected during the final two-year phase of a property market bubble. With the pace likely to accelarate throughout 2007 prices grew by 0.6% during November.

"Buyers may have shrugged off the August interest rate rise, but the prospect of a further increase in November seems to have forced those who were thinking of moving to actually do so. The result has been a sustained increase in market activity over the last 2 months. But set against a background of dwindling supply, house prices have continued to rise, a trend that has now spread beyond London and the South East" comments Richard Donnell, Hometrack's Director of Research.

After a modest slowdown in market activity over the summer, the volume of sales agreed by agents has now reached levels similar to those seen in the late spring and early summer. Sales agreed over November, compared to October, were up 4.8% with the greatest increases in the Eastern region (10.7%), the South West (12.3%) and London (7.1) - albeit, in the case of the Eastern and South West regions, off a low base.

"The growth in sales means that the supply of homes on the market has declined over November by -3.3%, the sharpest decrease for a year. Unsurprisingly the greatest squeeze on supply has been in London (-4.7%) and the South East (-6%).

Price rises over November were correspondingly strongest in London (+1.2%), and the South East (+0.7%) but also in East Anglia (+0.7%), driven by the imbalance between supply and demand. The number of price rises across the country has also spread with almost two fifths (39.3%) of the 2,300 postcode districts covered by the Hometrack survey seeing prices move higher over the month compared to just 25% in October.

"The fact that the market appears to have retained its momentum despite the August rate rise is most likely a result of the majority of property transactions being carried out by those that are already on the housing ladder or are being assisted in some way," explains Donnell. "However, we do expect the recent increase in interest rates to impact on levels of activity in the months ahead with the market likely to experience a seasonal slowdown over December.

"We are forecasting that average house prices will rise by 4% over 2007 supported by low levels of housing turnover and prices continuing to be set by the ‘haves' already on the housing ladder. London and the South East are expected to remain the primary engines for growth, with prices being driven by a continuing supply/demand imbalance" he concludes.

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