Gap Between Outlook for House Prices Widens

August 20, 2012 /

Knight Frank/Markit’s House Price Sentiment Index (HPSI) signals that average house prices fell again in August. Nearly 20% of households said the price of their home declined ‐ the highest proportion since February this year. Some 8% said the value of their property rose, resulting in a HPSI reading of 44.5, down from 45.6 in July and 46.3 in June.  

Any figure under 50 indicates that prices are falling, and the lower the figure, the steeper the decline. Any figure over 50 indicates that prices are rising.

The survey of 1,500 households across the UK showed that London (51.9) remains the only region where households felt the value of their home rose over the past month, continuing the trend set back in March. Households in all the other ten regions reported house price falls, with the North West (39.5) seeing the deepest declines.

Since the inception of the HPSI, the index has been a clear lead indicator for house price trends. The future HPSI, which measures what
households think will happen to the value of their property over the next year, edged down in August, although it remained in positive territory.

Around 28% of households anticipate a rise in the value of their home over the next 12 months, compared with 24% expecting a decline. The
resulting index reading is 51.8, down from July’s reading of 51.9 and marking the fifth monthly decline since March this year.  

Expectations for house price rises were recorded in six of the 11 regions in August. But the gap between the northern and southern regions widened in July and August. On average, households in the southern regions expect price rises (53.8) while those in the North expect prices to fall (48.7). This ‘expectation gap’ of 5 reverses
the narrowing seen in July (4.8) and June (2.9).  

The only exceptions to those expecting house price falls in the North are households in Yorkshire and the Humber, with saw a sharp bounceback in expectations in August from 37.9 to 52.7, and households in Scotland (52.8).

London leads the way across the country, with households in the capital expecting the biggest price rises over the next year (61.3), although this is down from 63.5 in July.  

The split between under and over‐45s on their outlook for house prices narrowed slightly in August but was still pronounced.   

All age groups under 45 expect house prices to rise over the next 12 months, with thosein the typical first‐time buyer age bracket of 25‐34
expecting the biggest rises (55.9). However all of those aged over45 expect house prices to fall, indicating that established homeowners are more downbeat about the future movement of property prices.  But the average gap between the over and under 45s narrowed to 4.9, down
from 6 in July.  

Those aged over 55 were the most downbeat about future house prices in August (48.3), chiming with additional data which shows that those who own their home outright expect the value of their property to dip by next August (46.6).  

In contrast, homeowners with a mortgage (52.1) expect prices to rise in the coming yearas do those in private rented property and living rent‐free at home (52.3, 58.2).  

Gráinne Gilmore, head of UK residential research at Knight Frank, said: “The overall HPSI results suggest that households perceive the housing market to be at its weakest point in six months, reflecting the downbeat economic data which has emerged recently.  Only six regions out of 11 expect house prices to rise over the next 12 months and the majority of these are in the South, underlining how localised housing market movements are.  

“As well as the geographical gap, there is also an ‘age gap’, with older households expecting house prices to fall. In contrast, younger households aged under 45 expect prices to rise, creating difficulties
for those who have yet to climb onto the housing ladder.  

“It is noticeable that there was a strong bounce‐back in the outlook for house prices among those in Yorkshire and the Humber. It is surely only a coincidence that this came at the same time as a very strong showing by Yorkshire athletes at the Olympics!”

Tim Moore, senior economist at Markit, said: “Households reported another drop i n the value of their property in August, and were less likely to expect prices to rise over the next 12 months. The latest sentiment snapshot unsurprisingly highlights that your postcode matters most when it comes to property price expectations.

“However, August’s survey also showed an increasingly large gap to
mind between the generations, with forecasts of house price declines among the older age groups contrasting with expectations of price rises across the youngest households.”


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