Squeeze on stock threatens new home affordability

The average price of a new home fell by just 0.5% in June 2009, following a sharp drop of 2.5% in May. The monthly drop reduced the decline in annual growth in the new homes market to -13.7%. The rising price of larger property types continues to indicate the re-emergence of a supply/demand imbalance in the family homes market, with the price of detached homes increasing for the fourth month running.

Commenting on the data, David Bexon, Managing Director of SmartNewHomes.com said:

“Little can be read into individual monthly house price data, but collectively the signs remain positive that the overall house price decline is continuing to slow. Attempts from developers to support buyers in the new homes market have kept prices conservative, but decreasing stock levels are posing a threat to long-term affordability.

“Positive buyer behaviour reported by developers in recent weeks does suggest a potential return to normality in the sales market, but any recovery continues to be hampered by the majority of people still frozen out of the mortgage market. The new homes market is at risk of another unsustainable price boom as a result of a sudden supply shortfall, if the Government does not take more proactive steps to support housebuilders in kick-starting new schemes, and if improvements in mortgage availability/affordability are not made quickly to support the many people looking to buy at current prices.

“House prices are clearly no longer a discerning factor in keeping buyers out of the market. In June, demand price (the price buyers are willing to pay), increased for the third month running, offering further evidence of growing consumer confidence and the high level of homebuyer activity being recorded across much of the industry.

“Buyers are aware that house prices have reached a low point, and whereas many may have been priced out at the top of the market there is now a widespread perception of improved affordability. The prevailing lack of mortgage finance has prevented many first-time buyers from making their first purchase, but new deals such as the Nationwide 125%  mortgage, should help to ignite more competition among lenders.

“There are no major issues of oversupply in any area of the market at the moment, with equity-rich buyers having been out in force for much of 2009, taking advantage of the best deals as prices threaten a return to upward growth. Many have seized the opportunity to buy properties that would have been out of their price range a couple of years ago. This has resulted in renewed popularity in properties such as larger two bedroom apartments, which had previously been suffering from oversupply in some areas, as well as adding to the diminishing stocks of family homes.

“However, property types currently in the shortest supply, such as affordable family houses, could soon be once again forced to make way for higher density schemes if greater efforts are not made from government and financial institutions now, both to support production and boost sales to first time buyers in the short term.

“The number of new homes coming onto the market in June rallied slightly from the previous month, but it is still down significantly on a year ago. The new supply of detached homes was 76% lower than June 2008, while the number of apartments coming onto the market actually rose by 14% from this time last year. Developers are under pressure to supply the necessary homes to meet demand, but greater financial support for the housebuilding industry itself is required in addition to assistance for buyers.

“Regions such as the East Midlands, which have some of the country’s most affordable family homes, have rallied in recent months, as people look to make their move into the market. The supply/demand imbalance in the London new homes market appears to be re-establishing itself, following a suppressed period for prices in 2008. Despite a minimal decline in June, the capital has recorded sustained annual growth at over 10% for the past three months.”

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