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Tuesday, July 22, 2003

UK Housing Update

Real economic news is still a bit thin on the ground at the moment. The positive mood in the equity markets continues, and most of the world seems to be taking it as read that we're in motion for a nice steady recovery. I wonder? Meantime, a bit of detail on the current state of the UK housing market, which will certainly be one of the flashpoints if there are problems. At the moment the drift is downwards, but the extent and duration is far from clear. Perhaps one of the interesting questions is what impact if any this modest correction will have on UK consumption.

The number of unsold homes on surveyors' books rose to the highest level in almost three years in June as the number of house sales continued to fall, according to a survey. But there were signs of a return in confidence in the housing market, the Royal Institution of Chartered Surveyors said on Monday. Its monthly housing market survey indicated house prices fell at a slower rate in June, while there was a rise in the number of buyer inquiries. "Buyer interest has perked up most in London, following a very depressed few months around the time of the war in Iraq," the survey said.

The number of surveyors in England and Wales reporting price falls in the three months to June outnumbered those who reported rises by 12 per cent. That compares with May's more dramatic 26 per cent increase in recorded declines. Rics said there had been a "substantial" slowdown in the number of new sellers as fears about large house price falls had receded. That was likely to limit further rises in stocks, which last month were running at their highest level since September 2000. While it might also be expected to put upward pressure on prices, Rics cautioned that a lack of first-time buyers was helping to keep a lid on prices.

The survey suggested the slowing in the pace of house price falls was particularly marked in the south. Prices continued to rise in the northern regions and in Wales, but were almost unchanged in the Midlands. Although London house prices fell for the sixth month in a row, surveyors in the capital reported "much more" interest from potential buyers in June, and expected a small rise in prices over the summer. "Surveyors are still feeling confident of a rebound in the market based on low interest rates and a steady labour market," said Ian Perry, Rics spokesman.

"In London, in particular, some of this increased confidence over the last three to four months may be down to a recovery in the stock market and less instability in the City job market. The share price recovery may also have helped to stabilise demand across other southern markets as well." Recent Rics surveys indicating monthly house price falls have intensified fears that the market could be heading for a sharper-than-expected downturn, although they have been more downbeat than other house price surveys. Both Nationwide and Halifax have continued to report monthly house price rises, albeit at a slower pace. In May, the Bank of England revised its forecasts to predict house price growth would come to a halt next year, although it said there was little chance of a sharp correction.
Source: Financial Times

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