Property prices are a perennial subject of interest, especially if you are relocating.

Not surprisingly, considering that the announcement of the results of the government’s spending review is rapidly approaching, the slowdown in the residential property market is continuing, according to the latest crop of monthly house-price surveys and indices. Meanwhile, demand for rented accommodation is growing.

The Halifax House Price Index for September reports a massive 3.6% fall in prices since August – the largest monthly fall since the index was introduced in the early 1980s. The average price of a home is now £162,096. However, says Halifax housing economist Martin Ellis, "Looking at quarterly figures – a better measure of the underlying trend – house prices in the third quarter of 2010 were 0.9% lower than in the second quarter of 2010. This rate of decline is significantly slower than the quarterly changes of between -5% and -6% that were seen in the second half of 2008. It is, therefore, far too early to conclude that September's monthly 3.6% fall is the beginning of a sustained period of declining house prices.

“A shortage of properties for sale contributed to an imbalance between supply and demand and was a key factor driving up house prices last year. An increase in the number of properties available for sale in recent months has reduced the imbalance. At the same time, renewed uncertainty about the economy and jobs has caused consumer confidence to falter recently, dampening the demand for home purchase. Together, these factors have been exerting some downward pressure on prices in recent months. In addition, volatility of the month-on-month measure has increased, due to the low transaction levels across the market; this underlines the difficulty of getting a clear reading on the current state of the housing market.”

By way of a contrast, the latest House Price Index from Nationwide describes September as an ‘uneventful’ month for house prices. The seasonally adjusted price index for a typical UK property, it found, was essentially unchanged in September, edging up by a marginal 0.1% from its August level.

Nationwide’s chief economist, Martin Gahbauer, says, “That left the annual rate of house price inflation at 3.1%, down from 3.9% in August and 6.6% in July. The three-month-on-three-month rate of change – a good indicator of the near-term price trend – fell from 0.0% in August to -0.9% in September. This represents the first negative reading for the three-month rate of change since May 2009 and is consistent with the clear loosening of housing market conditions observed over the summer months.

“Although the three-month rate of change has turned negative, at this stage it is not pointing to a significant pace of decline in property values. During the 2008 downturn in house prices, the three-month rate of change dropped as low as -5.5%, well below the current level of -0.9%. Nonetheless, buyers appear to have a slightly better hand than sellers at the moment, as the market continues to absorb the recent increase in property for sale.”

Estate agents’ view of the market

Hometrack’s latest monthly house-price survey, conducted among more than 5,100 estate agents and surveyors, indicates that house prices have fallen across all regions for the first time since April 2009, as a result of rising supply and falling demand. Demand for housing dropped by -2.9% in September, and, overall, average prices fell by 0.4%. This has led time on the market to increase, from 8.9 weeks in August to 9.3 weeks in September.

The South West posted the largest monthly decline, at 0.6%, followed by -0.5% in the South East and East Anglia.

Hometrack says that reports of falling house prices and weaker trading conditions have discouraged would-be sellers from putting their homes on the market, a trend that will limit the scale of price falls in the coming months.

The rentals perspective

According to the Association of Residential Lettings Agents (ARLA), the average void period – a key indicator of the buoyancy of the rental market – has fallen to its lowest level for eight years, as demand for rented property remains high. The average void period now stands at 3.2 weeks. Compared to the preceding survey, the average number of new tenancies signed up has also increased, in line with seasonal trends.

Ian Potter, operations manager of ARLA, said, “The rental market is incredibly strong at the moment for those working within the industry, but for those consumers who are relying on the private rented sector (PRS) for housing, the cost of renting must be of concern. The new government must ensure that finance is made available to the sector, so that more properties can be brought into the PRS and ensure that more rental homes are made available.”

Average void periods for rented residential properties are already short, ARLA says, with nearly eight out of ten member offices reporting averages of four weeks or less per year. The South East has experienced the lowest void period, at just 2.9 weeks, compared with 3.3 weeks for Central London and 3.4 weeks for the rest of the UK.

The average void period for the whole country is down quite sharply. Average voids have decreased in all three main geographical areas, with the greatest decrease being for those outside London and the South East (from 3.9 to 3.4 weeks).

Average void periods are lower in the Rest of London (2.8 weeks) than anywhere else in the country, with most other regions having averages between 3.4 weeks and 3.7 weeks per year. The exceptions to this are the Rest of the South East, at 3.0 weeks, and the South West, at 3.1 weeks. Scotland, Wales and Northern Ireland have the highest average void period, at 3.7 weeks per year. The largest reduction was in the Midlands (down from 4.2 to 3.5 weeks).

ARLA comments that the rental market has made a dramatic recovery since the beginning of 2009, when void periods were close to an all-time high. The fall in the last four quarters, it says, confirms that the trend has now turned firmly downwards again, and the average for this quarter is the lowest since these surveys began nearly ten years ago.

The 12-month outlook

Hometrack expects the supply of homes coming to the market to slow, limiting the potential scale of price falls in the next 12 months.

Lack of finance, cost of finance and public spending cuts are seen as the three biggest risks to the residential property market and the businesses that operate in it, according to the new Savills Sentiment Survey. Respondents predict further significant price falls and an increase in demand for rented housing.

“The survey starts to reveal a sea-change in the residential property industry as it moves from a reliance on debt finance and searches for longer-term equity investors,” says Yolande Barnes, head of residential research at Savills. “This is as true of big-hitting development companies as it is of first-time buyers looking to the bank of Mum and Dad to provide equity."

The outlook for activity levels and profitability over the next 12 months remains uncertain at best, particularly in the affordable sector, where impending public-sector cuts have hit confidence hard. “The sector that managed to buck the trend during the recent recession is now succumbing to a lack of funding that the rest of the industry has been dealing with since 2008,” says Ms Barnes.

Says the Halifax’s Martin Ellis, “Prospects for the housing market remain uncertain. Earnings growth is expected to be very modest over the next year, tax rises are on the way, and more people are putting their homes on the market. These will all be constraints on the market, dampening house prices. On the positive side, we expect interest rates to remain very low for some time, which will underpin the improved affordability position for homeowners."

Nationwide’s Martin Gahbauer believes, “Where house prices go next will depend on whether the strong flow of new property onto the market continues into the autumn, and on the extent to which existing sellers are willing to compromise on their asking price in order to make a quicker sale. Many of the new sellers who have marketed their properties may indeed be speculative sellers testing the market in response to the price gains seen since early 2009 and the abolition of Home Information Packs (HIPs). If this is the case, and there is little urgency to sell for financial or other reasons, then prices may remain more or less stable, albeit at the expense of market activity. The housing market would then be characterised by a stalemate situation, with low levels of liquidity and little change in house prices. If, on the other hand, most of the new sellers in the market are keen to sell more quickly, then the recent slight downward trend in prices may continue.

“Developments in the labour market will also be a key determinant of housing market performance. Recent news from the labour market has been mixed. On the positive side, growth in the number of people in employment reached a record 286,000 in the three months to July, though the majority of the new jobs created were part time rather than full time. The growing use of part-time labour by firms probably reflects a desire to expand production as the economy recovers, but to do so with enough flexibility to change course quickly in case economic conditions deteriorate again. This approach suggests that confidence about the durability of the recovery is still somewhat fragile among many employers.”

The Autumn 2010 issue of Re:locate includes an update on the UK residential property market. The Winter 2010/11 issue will contain further in-depth analysis of this key sector for relocation, with the latest on the furniture rental sector.