The latest Economic Report and Forecast by the National Association of Estate Agents (NAEA) predicts that there will not be a market crash, as evidence points towards a controlled slowdown of the housing market in most parts of the country.

At the end of a dip

Recent surveys from estate agents and surveyors suggest the market may be reaching the bottom outside of London.

For example, while leading property website Rightmove.co.uk reported a buyer’s market in the first four months of this year, with supply exceeding demand, their latest May survey shows a swing back toward a seller’s market.

Surveyors reveal a similar slowdown in the rate of decline. Both estate agents and surveyors are becoming more optimistic about the sales outlook, possibly due to some activity being delayed during the final stages of the Iraq conflict.

Market collapse unlikely in the UK

Past collapses in the housing market have been triggered by problems in the economy, such as sharply rising unemployment and interest rates. Many households are then forced to sell, which quickly undermines house prices.

The NAEA expects neither of these triggers to feature in the next 12 months. Even deteriorating affordability and a lack of first time buyers would only lead to the market levelling off in most areas and would not produce a situation where buyers are forced to sell.

Based on this, the NAEA’s house price forecast remains largely unchanged (see table below) with house price inflation at 11% by the end of 2003.

London bears the brunt

Since 1995 average first time buyer prices in London have grown by 161% of the UK average. Even after allowing for growth in earnings and employment, house values look stretched as London copes with a series of economic setbacks.

London is more closely linked to the world economy than other parts of the country and has borne the brunt of the international downturn. Cutbacks in IT, finance and business service sectors, an oversupply in offices and the decline in the leisure and retail sectors have been reflected in the housing market. Estate agents surveyed in the capital have reported static conditions since late last year.

Hometrack’s monthly survey of 900 agents, shows house prices are falling in half of London’s boroughs and are static and rising in the rest, overall the survey suggests a 0.1% fall in prices per month with a 0.6% decrease so far this year.

However this is only a modest correction, whereas with the crash in the early 1990’s prices fell across all property types and boroughs. The London market differs now as the financial downturn and loss of international investors has only affected the top end of the market.

Low interest rates, high employment levels and the pick up in government spending and public sector wage inflation provide strong support for less expensive homes and boroughs, which also continue to benefit from buy-to-let activity.

The NAEA expects house price inflation in the capital to slow to just 4% by the end of the year then falling to 0% by 2005.

Melfyn Williams, president of NAEA said, “I find the findings of this report very encouraging, showing that market conditions make a crash highly improbable. Obviously, there has been a market slowdown but reports are showing that the market may be ‘on the up’ outside London, with a swing back towards a sellers market, which can only be positive for the rest of 2003.”