Rightmove August Index: Asking Prices Down 2.2% - Good News for Housing Market

UK 18 August 2009 - Oh my god they're doing it again. Rightmove have just revealed its August data on asking prices, and there are literally dozens of articles floating around the web with headlines to the effect: UK house prices suffer biggest fall.

For god's sake; Rightmove is revealing data on the asking prices of properties that are added to the site, that is a million miles away from data on sale prices.

Now, that I have gotten that out of my system I can cover the news.

Rightmove have said that the average asking price of properties added to the site in August was 2.2% lower than in July. That is actually good news, because vendor realism is one of the biggest hindrances to a recovery in the UK housing market.

It is either a well-known fact or a commonly held belief that during a correction house prices will fall until the gap between what buyers are willing to pay and what seller's think their house is worth closes. So, when the Rightmove index was showing asking prices rising earlier this year I quipped that when the Rightmove index began to show prices falling I would think we were getting closer to bottom.

Now, the Rightmove index has shown asking prices falling for the last 2 months, and it does indeed seem that vendor realism is increasing. On top of that mortgage approvals are up and the economy seems to be making the slow beginnings of a recovery, so are we close to a recovery in the housing market?

Unfortunately not. The banks are still under pressure to improve their balance sheets; and to do this by making more profit from fewer loans, which means they are turning as many people away as they possibly can. Also because of this, they are only offering affordable mortgages to people with deposits of 10% and over, with the best deals being attainable only by people with 25% or more to put down.

Then you have rising unemployment, with close to 3million people out of work and millions more in fear for their jobs, none of whom are even considering buying a home.

In short: there are not enough mortgages, but there aren't enough people looking for mortgages for it to matter.

So when will we see recovery? According to Richard McKay, director of FSBO property sales site Zungalow.com, spring/summer 2011 could be the turning point.

"The economy is struggling to cling to the beginnings of a recovery. Even as the economy starts to turn around we are still looking at massive unemployment and job fears right now. It will be well into a clear recovery before these job fears ease sufficiently and some of the newly unemployed manage to get back into work.

"So you are talking about the final 2 quarters of next year for this to start happening. When it does it will be like a black cloud has lifted, and vendor realism will be a lot more prevalent, and I believe the combo will trigger somewhat of a buying and selling frenzy in spring 2011, if not before."

You can read more of Richard McKay's views on the housing market on the Zungalow blog (Zlog).