Another subdued year for the housing market?

With the chequered performance of the property market in 2010 highlighting fundamental challenges that now face the sector RICS report that they believe the story for 2011 will remain the same. 2010 saw:-
– Prices (at a headline level) remain somewhat elevated notwithstanding the modest declines recorded on most indices in the latter part of the year
– Transaction activity fell back following the ending of the previous stamp duty holiday (December 31st 2009) finishing 2010 at disappointingly low levels
– House building edged up compared with 2009 but still remains way short of ‘need’ if the updated projections for household formation are to be believed
– Private rents have resumed an upward trend as potential home buyers are forced to look at alternative forms of tenure, partly because of the continued lack of mortgage finance 
It is suggested that any recovery in the economy may provide focus for lenders to strengthen their balance sheet but recent analysis suggests that the availability of mortgage finance is not likely to significantly increase over the coming year. Based on HMRC numbers volumes are likely to be pretty close to the 900,000.00 recorded in 2010. The comparable number, employing the Land Registry data (which only covers England and Wales), will be around the 700,000 mark. This would be broadly consistent with the trend over the past few months. RICS have no doubt that were the economy to suffer a further relapse, buyer interest would weaken but it is also conceivable that as the recovery becomes more firmly entrenched lenders may be willing to channel a little more finance into the mortgage market. 
The central scenario in this forecast is for the typical price on a residential property (as measured on the index compiled by the Nationwide Building Society) to continue edging lower during the early part of 2011. The best indicators from the RICS Housing Market Survey do, however, point to a downward trend stabilising in the spring with prices actually beginning to creep upwards again before the end of the year. On the basis of this profile, the suspicion is that prices in the final quarter of 2011 will in all probability not be very different from where they currently stand (on a fourth quarter on fourth quarter comparison, prices may drop a negligible 2%). That said, there remains a risk that the cuts in public spending have a more deleterious impact on both employment and the economy. A realistic, weaker, scenario could see economic growth amounting to little more than one per cent next year with the ILO unemployment rate climbing to nearer 9%. In these circumstances, house prices could fall further. However, even in this environment our judgement is that the lack of new supply is likely to prevent the decline amounting to very much more than 5%.
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