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House prices fuelled by supply/demand imbalance

House prices fuelled by supply/demand imbalance

Category: Mortgages

Updated: 03/02/2014
First Published: 03/02/2014

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The latest National Housing Survey from property analysts Hometrack has revealed that house prices rose yet again in January, this time by 0.3%, with analysis finding that the housing market is underpinned by the largest supply/demand imbalance the sector has seen since 2009. Understandably, it's thought to be this that's fuelling those price rises.

The marginal monthly increase might be showing the slowest rate of growth for six months, but this is expected at this time of year – seasonal factors have historically always meant that house prices rise less significantly during the festive season. No regions reported monthly falls, while on an annual basis prices have actually risen by 4.8%.

It's a strong start to the year for the sector as a whole, with the average time a property stays on the market being 8 weeks – in January 2010, it stood at 10 weeks – while in positive news for sellers asking prices are being achieved more readily with the average discount being less than 5%, a drop from 7% a year ago.

However, the supply of new homes for sale has decreased significantly over the year. It fell by 6.6% in January alone and by 17% over the last five months, and despite analysts expecting a seasonal uplift in terms of homes coming onto the market there could still be a distinct supply/demand imbalance for some time – particularly as demand is also expected to continue, thanks to a combination of low mortgage rates, increased first-time buyer activity and positive news for the economy as a whole.

Richard Donnell, director of research at Hometrack, has this warning:

"Supply will only improve through more existing home-owners putting their property on the market, investors looking to capitalise on recent price gains and increase in new supply from builders… If sellers remain slow or reluctant to enter the market in expectation of further price gains, then the upward pressure on prices will build rapidly once again."

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