House prices “will be more volatile in future”
The reluctance of existing mortgaged homeowners to move house is starving the market of a source of new supply and risking prices becoming much more volatile.
That’s the verdict of Richard Donnell, head of research at consultancy Hometrack.
“Higher moving costs, and an inability or unwillingness to finance a home purchase are all factors driving fewer moves by existing homeowners. The shift to a low inflation environment also has an important longer term impact as it erodes mortgage debt more slowly than when inflation is higher” Donnell warns.
“Households cannot rely on inflation to shrink their debt in real terms as much as they did in say the 1980s meaning longer periods between moves is a trend that is here to stay. Growing illiquidity of housing is a major challenge for the new Government and is set to make house prices more volatile than in the past.”
His warning comes along with his latest analysis of the current housing market, which he says has seen average house price growth of 1.4 per cent in the three months to April – which, despite the uncertainty ahead of the general election – is the biggest quarterly average rate of growth.
Donnell says house price increases are being driven by the improving economic outlook boosting market sentiment, record low mortgage rates and that low churn of housing stock which is creating scarcity of supply.
“Record low mortgage rates, which are more than half the level of 2007, are boosting buying power, while low rates of housing turnover creates housing scarcity and is keeping an upward pressure on house prices” he says.