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Index says property prices down again but analysts are optimistic

It said prices were 3.7% lower in May compared with a year ago, the biggest decline since October 2009. On the month, prices nudged 0.1% lower after April's unchanged reading.
Hometrack blamed the decline on flagging consumer morale, public holidays and people taking Easter breaks that ran on into May.

‘The late Easter break and May bank holidays reduced the volume of traffic through agents' offices. But of greater significance is the growing evidence of weakening consumer confidence,’ said Hometrack research director Richard Donnell.

Economists expect high inflation, weak wage growth, tax rises and public spending cuts to weigh on consumer spending and house prices this year, despite record low interest rates.

The Hometrack survey also showed that the number of new buyers registered with estate agents fell by 0.5% in May, the first decline since January. The number of sales agreed rose by 1.6 percent in May, lower than the 8% jump seen in April and March's 12.6 percent rise.

London continued to buck the national trend, with prices up by 0.2% on the month. Hometrack said it expected lower demand to keep pressure on national house prices over the rest of the year.
But at the end of last week the Nationwide May index sowed that prices rose 0.3%, slightly faster than expected, but they are still 1.2 % below their level a year ago.

Analysts are more optimistic. Some say that the UK property market has not hit rock bottom and will begin to turn around again before the end of the year with prices rising 4% a year over the next four years.

According to the Centre for Economics and Business Research the price recovery will be gradual and there will be no boom and bust scenario. ‘We think the market is currently close to the bottom for the UK as a whole and there are signs prices will stabilise over the second half of the year. The main factor driving up prices is the shortage of available housing which has already pushed up rents,’ said Douglas McWilliams, CEBR chief executive.

He suggested London prices rises will remain ahead of the rest of the UK and are forecast to rise about 2% a year faster. ‘But the factors that will ultimately drive up house prices again are the loose monetary policy that will accompany the government’s deficit reduction and  the ability of banks to lend again on  consumer friendly terms as their own underlying financial position improves,’ he explained.

‘This should not be confused with boom and bust. We are forecasting a gradual four year recovery at an annual rate of about 4%,’ he added.

A sseparate study published by the Institute for Public Policy Research even suggests there is chance of house price bubbles and it is calling for mortgages to be capped at 90% of property value with loans limited to 3.5 times household salaries.

Reckless lending in the past by banks and building societies, with loans of up to 125 per cent and five times salary, triggered the property surges that have been disastrous for the economy.