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House prices "will be more volatile in future"

The reluctance of existing mortgaged homeowners to move house is starving the market of a source of new supply and risking prices becoming much more volatile.

That’s the verdict of Richard Donnell, head of research at consultancy Hometrack.

“Higher moving costs, and an inability or unwillingness to finance a home purchase are all factors driving fewer moves by existing homeowners. The shift to a low inflation environment also has an important longer term impact as it erodes mortgage debt more slowly than when inflation is higher” Donnell warns. 


“Households cannot rely on inflation to shrink their debt in real terms as much as they did in say the 1980s meaning longer periods between moves is a trend that is here to stay. Growing illiquidity of housing is a major challenge for the new Government and is set to make house prices more volatile than in the past.”

His warning comes along with his latest analysis of the current housing market, which he says has seen average house price growth of 1.4 per cent in the three months to April - which, despite the uncertainty ahead of the general election - is the biggest quarterly average rate of growth. 

Donnell says house price increases are being driven by the improving economic outlook boosting market sentiment, record low mortgage rates and that low churn of housing stock which is creating scarcity of supply. 

“Record low mortgage rates, which are more than half the level of 2007, are boosting buying power, while low rates of housing turnover creates housing scarcity and is keeping an upward pressure on house prices” he says. 

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    • R M
    • 22 May 2015 07:59 AM

    I wonder how many Agents have read that and understood the implications for their business? I have been a day 1 fan of Hometrack, the good sense they talk and the innovation they bring to the industry. They were one of the few firms who ever travelled all the way to Redruth to introduce their service, mind you the next meeting was in Bristol, the 'half way' between London and West Cornwall that favours London by a good 50 miles!

    That is a very thought provoking article, the best I have read in a long while! If more people were here it would make for a great debate.

  • Jon  Tarrey

    I'm here! And I agree, it is a thought-provoking article and pretty much hits the nail on the head.

  • Fake Agent

    Maybe if houses weren't seen as so much of an investment opportunity we wouldn't have this problem of volatile, unpredictable house prices. Houses are already ridiculously expensive and that shows no signs of slowing down anytime soon. In fact, they're only going to get even more expensive.

    We all know what needs to be done to bring this back down to normal levels, but the government don't seem to understand this fairly simple concept.

    It's in the best interests of everyone, estate agents and those in the property industry too, for prices to be at a more reasonable level. Just look at the story yesterday on the number of sales falling through - shockingly high. If prices were at a more rational level, we might see quicker completion rates. High prices put buyers off and make sellers greedy.

  • Kelly Evans

    I don't think you really understand how estate agency works. You call yourself Fake Agent - do you have any experience in the industry or are you just an ill-informed outsider with a serious chip on your shoulder?

  • Rob  Davies

    Take it easy, Kelly. Estate agency isn't a closed shop, we welcome opinions from everyone.

    This trend will be around for a while yet. Until supply and demand are brought closer together, high house prices are here to stay. It's almost a bit of an insult to first-time buyers that mortgage rates are so low but house prices/deposits needed are so high.

  • Adam Pritchard

    It is a thought-provoking article and Fake Agent is not wrong to suggest that more affordable housing would benefit agents too - more house building at the lower end of the market would have the inevitable effect of increasing numbers of transactions which benefits us all.

  • Karl Knipe

    Yes, Fake Agent and Robert May both have a point when they say a greater supply of affordable homes will benefit agents. We naturally want to get the best possible price for our clients, but if the number of buyers is drastically reduced that becomes less and less likely. We need more buyers entering the market - as such, they need to be incentivised not dissuaded.

  • Tim Gorgulu

    Lack of supply is definitely an issue. Until more affordable housing is built, house prices will remain high.

    That's not a problem if people are willing to pay the prices. The problem comes, as Karl Knipe points out, if not enough people are buying/able to buy. And if more and more existing mortgaged homeowners stay put, thereby further reducing supply.

    The market seems fairly stable at the minute, post-election. Prices haven't been volatile in recent years, they've been on a general upward trend for a while now. I can't see them swinging from low to high to middle of the road and back to high again, so I'm a little bit sceptical about that side of Hometrack's argument.


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