It had to happen sooner or later and the latest RICS survey this morning confirms it: supply is finally outstripping demand in the housing market.
The February survey shows both new buyer inquiries and new seller instructions rebounding from a January when activity was depressed by the end of the stamp duty holiday and the weather. But the growth in supply was much stronger than the rather anaemic bounceback in demand.
Put that together with a continuing slowdown in new mortgage lending - Bank of England figures last week showed approvals in January were 17% down on December and fell to their lowest level for eight months - and it’s not surprising that both the major lender house prices indices showed that prices fell too. On Friday the Halifax revealed a 1.5% fall in February and earlier the Nationwide said prices fell 1%.
That sparked media speculation over the weekend about a ‘lost decade’ of stagnation for house prices. This may be putting it too strongly, especially when you bear in mind that the annual rate of house price inflation actually increased to 4.5% on the Halifax measure because prices fell by more last February.
However, RICS chief economist Simon Rubinsohn is predicting that prices will rise 1-2% this year but be under much more pressure next year. That fits with the pattern of the last crash, which was followed by if not by a lost decade, then certainly by a lost few years when the price falls of 1991 to 1993 were followed by three flat years.
In the absence of a return to the reckless lending seen in the last few years before the crash, prices eventually have to come back into line with earnings - and those are going to be squeezed by public spending cuts and tax rises after the election.
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