Housing slowdown gains momentum over June

The monthly rate of house price growth halved over June, with average prices rising by +0.3% compared to +0.6% in May and a recent high of 0.8% in March 2007. The annual rate of house price growth also slowed to 6.4% (from 6.7% in May), a trend that is set to continue over the second half of the year on the back of rising levels of supply and weaker demand in the face of higher interest rates.

The slowdown is being driven by a mis-match between supply and demand, with price rises over June limited to 28% of the country - down from 44% in April. For the fourth month in a row the growth in the supply of homes coming to the market (+12.4%) exceeded the growth in new buyers (+5%) with the volume of homes coming to the market doubling over June.

Richard Donnell, Hometrack's Director of Research explains, "This growth in supply is primarily a result of homeowners putting their properties on the market in advance of the now delayed introduction of Home Information Packs (HIPs). It is also partly explained by buyers looking to take advantage of the recent strong market conditions and cashing in on the back of relatively 'full' asking prices."

"The growth in supply comes at a time when demand is faltering on the back of recent increases in interest rates and widespread fears of further rate rises to come," adds Donnell. "With much of the new supply coming to the market from discretionary sellers looking to achieve close to the full asking price, it seems likely that the average time to sell property will increase in the months ahead with a slowdown in sales volumes and a switch to a 'buyers' market."

The buoyancy of the London market over the last 18 months has been a major driver of the headline rate of growth. Now, however, London is witnessing a clear turnaround in market conditions which is supporting the current slowdown. The London region saw the largest decline in demand over June (-3.5%) compared to a national average of +5% and an increase in supply (10.9%) - the highest recorded by the survey for over 2 years (February 2005). Despite this, prices in London still rose by 0.7% over the month, down from 1.3% in May, driven largely by above average growth in the equity fuelled prime housing markets of central and south west London.

Elsewhere, the year on year rate of growth remains subdued with price rises of less than 2.5% in six out of ten regions, primarily those away from southern England where previous interest rate rises have already impacted on the market.

Donnell comments, "The ratcheting up of interest rates since summer last year has finally caught up with the London market which has been the engine for house price growth over the last 12 months. Housing market sentiment appears to be turning with buyers likely to become increasingly price sensitive over the second half of the year."

"As a result there are likely to be areas of the market where asking prices see limited price falls, primarily in those locations which have seen the highest levels of growth in recent months. Secondary markets are also likely to under-perform, as increasingly cautious buyers think twice about buying in 'second choice' locations. Despite these localised differentials in performance, we still expect the headline year on year rate of growth to slow to 4% by the year end with growth remaining in low single digits well into 2008," he concludes.