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Market Analysis Winter 2010/11


Market Overview


Since the last Winkworth Market Analysis the key event on the economic calendar was the Comprehensive Spending Review in October. This was the moment the UK found out exactly where the axe will fall on the public sector, and where the taxpayer will be hit with higher contributions. Since the review, the dust has settled and people are beginning to piece together what their employment status might be in 2011, how much disposable income they might have, what property they might be able to afford and whether they can afford their current property. This has contributed to a feeling of unease over what is likely to happen to the economy in 2011 and in turn what is likely to happen to the property market.


Many economic indicators point to strong growth and a successful 2011. The FTSE recently broke through the psychologically important 6000 mark to reach its highest level since before the downturn, and sterling has regained its strength against the euro. However, there is still a palpable level of consumer uncertainty and this is having an impact on the UK property market.


The Land Registry’s latest figures show that in the months between June and September, transaction volumes averaged 60,979 per month. This was a slight increase on the 58,772 per


4 Market Analysis Winter 2010/11


month for the same period in 2009. The latest Land Registry data for November shows a negative monthly house price change of -0.6%. This is the third consecutive month of falls and brings the average house price in England and Wales to £164,773.


The latest RICS housing market survey showed activity in the housing market continued to slow during November, with 44% more chartered surveyors reporting price falls rather than rises. According to RICS it is lack of demand from buyers that continues to stifle the market, and new buyer enquiries fell for the sixth consecutive month. First-time buyers are in particularly short supply, as large deposits required by lenders and availability of mortgage finance keep many from getting a foot on the property ladder.


RICS also commented that the sharp rise in stock coming to the market since the spring appears to be fading with new instructions dipping for two months in succession. Surveyors reported many would-be sellers decided to wait until the New Year to put their property on the market.


Figure 1 UK GDP growth


%


-6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6


According to the Bank of England, lenders have reported that demand for secured lending for house purchase fell markedly towards the end of 2010 and is expected to fall further in early 2011. This fall was largely attributed to a drop in prime lending, which reflected a recent fall in house prices, a general weakening of sentiment towards the housing market and uncertainty over the economic outlook associated with the impact of the government’s comprehensive spending review.


Downward GDP revisions disappointing but no disaster


%


In December the UK GDP growth figures for Q3 were revised down slightly. Between July and September growth was revised down from 0.8% to 0.7% while the overall estimate for annual growth in the UK economy during the quarter was reduced from 2.8% to 2.7%. While there is a measure of disappointment that growth has been trimmed, it does not fundamentally change the picture that economic activity held up well in the third quarter after robust growth in the second quarter. We should also 2004


-6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6


2005


Many economic indicators


point to strong growth and a successful 2011


2006 2007 2008 2009


GDP annual growth GDP quarter on quarter growth


2004


2005


2006


GDP annual growth GDP quarter on quarter growth


200 250


150


2007


2008


2009


2010


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