Archive news can be found at the bottom of the page

Supply and demand dynamic to provide support

Summary:

• 0% rise in average house price

• Underlying supply and demand factors will help to steady market

• Interest rate drops to around 5.25%

• Boost in consumer confidence as rates decrease

The National Association of Estate Agents (NAEA) is predicting that the UK housing market will hold steady in 2008 thanks to the continued presence of key underlying strengths.

While an unprecedented number of unknown factors make the movement of the market even more difficult to predict than usual, the basic supply and demand factors remain the same and will help to bolster prices through less fortunate times.

‘Unknown factors’ versus ‘underlying strengths’

The international ‘credit crunch’, issues with Northern Rock, successive interest rate rises and launch of home information packs (HIPs) are all major events that clouded the housing market in the second half of 2007. As the market strives to right itself again it is hoped that the worst is now over, however all of these events have left behind them considerable uncertainty for 2008. Questions over future problems that may come out of America, the size of any credit squeeze and the exact impact of the HIPs roll out still hang in the air. These could well have a significant impact on the fortunes of the market. In the meantime, however, there are a number of underlying factors that will help to keep the market steady.

Peter Bolton King, Chief Executive at the NAEA, comments: “These factors relate to the principle of supply and demand. At a very basic level, if supply is limited and demand is high then prices will remain stable or rise. We know that supply is a problem for the UK – a fact highlighted by the government recently as it revised its house building targets upwards. Similarly, we know demand will continue to increase. The population is rapidly growing and at the same time the number of single person households is also on the rise. While the market may have been asked to weather some considerable storms recently, the basic supply and demand dynamic is what will help to keep it steady in the long term.”

Average prices

As predicted, 2007 was a year of marked regional variations for house prices. The picture is expected to be similar, if toned down slightly, in 2008, with overall prices remaining static.

On a regional level, London and the South East will remain strong as demand continues. Other areas, however – particularly those suffering from lower employment – are likely to see prices plateau or perhaps even depreciate over the coming year.

Interest rates and consumer confidence

With the Bank of England having decreased interest rates this week for the first time since 2005, it is hoped that consumer confidence might finally be taking an upward turn. Reports suggest another rate drop for the New Year, which would be extremely welcome and would bolster confidence accordingly.

Peter Bolton King comments: “Further decreases in the base rate are expected for early 2008 when we may see another quarter percentage point fall. We are unlikely to experience another drop after that, however, until much later in the year. I would be pleasantly surprised if the rate was as low as 5% by the close of 2008.”

HIPs

Home information packs (HIPs) have had a bumpy ride in 2007. Following the government’s announcement that the Packs would be implemented in phases, the first two stages attracted considerable controversy. Buyers have shown little interest and at the same time new instructions have fallen considerably. The uncertainty has by no means cleared, either. With the final phase roll out planned for the 14 th December 2007 the full impact on the market is still very hard to predict.

Peter Bolton King comments: “Although a whole year has passed, it seems that HIPs are as much of an unknown factor now as when we were making our predictions for 2007. The first few months of 2008 will be a telling time. We’ll start to see the impact of the roll out early in the year when the market traditionally should pick up again after the Christmas break. I am really hoping that we don’t see instructions negatively affected by the launch of the final phase in the same way that they have been by phases one and two.”

Static market for 2008

Peter Bolton King concludes: “The market as a whole is clearly not as strong now as it has been over the past seven years and this is down to a combination of factors. While we expect to see a much more subdued picture in 2008, the underlying strengths remain the same and we are hopefully that these will help the market to weather adversity over the coming year.”

by: Editor

Back to News

News Archive