Commenting on the monthly national housing survey for June, Richard Donnell, director of research at Hometrack, said:
“Over the last four months the supply of housing for sale has grown three times faster than demand. The June Hometrack survey showed a decline in new buyer registrations across six out of ten regions.
“And in three regions – London, North West and East Anglia – this is the second month that there has been a fall in new buyer demand.
“Following strong market conditions over 2009, demand started to falter over the first quarter of 2010 – a trend that has continued with June seeing a modest 0.1% increase in new buyers.
“Market sentiment has been coming under mounting pressure, firstly with the run up to the Election and more recently with concerns surrounding the economy. Last week’s emergency budget only added to the uncertainty with confirmation of both spending cuts and tax increases.
“It comes as no surprise that measures of consumer confidence have dipped in recent months. Indeed we expect demand for housing to slow further as seasonal factors come into play and households consider the implications of the Budget on their finances and on the economy in general.
“The growing supply/demand imbalance spans the country and under normal market conditions this would typically result in a downward pressure on prices. However, while the proportion of the country registering higher prices continues to shrink – 11% in June, down from 25% in February – very low transaction volumes are exacerbating the scarcity of housing for sale and this is acting as a support to prices.
“The latest survey shows continued growth in sales being agreed – up 2.8% in June – albeit off a low base. As long as agents see sales still taking place, there is no real impetus to reduce pricing.
“Cash buyers and those purchasing with small mortgages continue to account for a sizable proportion of the market, a situation that is unlikely to change in the coming months. The proportion of the asking price being achieved remains flat at 94.3% as does the average time on the market (8.4 weeks).
“Despite our view that demand is set to weaken in the coming months, price falls are only likely to feed through once sales volumes start to fall back.
“ It is when this point is reached that prices will need to adjust to a level where volumes can be maintained. The reality is that the scale of any price falls is likely to be limited – particularly in the current low volume market.
“Looking further ahead, it is higher interest rates that pose the greatest potential threat to the market especially against a backdrop of fiscal tightening.
“In a low interest rate environment, scarcity and low turnover can support prices in the short term, but higher rates are likely to be the catalyst for a material change in housing market conditions.”