House prizes face further squeeze

House prices are likely to come under further downward pressure for the rest of 2012 from a widening gap as growth in the number of homes for sale outstrips potential buyers, a study has suggested.

Average house prices fell by 0.1% in August, the same drop seen in July, and prices are likely to be pushed down further as the market remains fragile and volatile, said property analyst Hometrack.

Demand from potential new buyers registering with agents has fallen for three months in a row, while the number of homes coming on the market has continued to grow, albeit at a slowing rate, the study found.

House prices in London were at a standstill this month, showing 0% change, marking the first time in a year that prices have not increased in the English capital.

However, the number of sales agreed across England and Wales showed an unusual 6.5% increase, which Hometrack said came from a low base and was likely to be due to sales being bunched up after a prolonged period of wet weather and depressed activity levels due to distractions like the Olympics.

Richard Donnell, director of research at Hometrack, said: "The balance between housing demand and supply is widening, suggesting further downward pressure on prices. Demand is up by 10% over the year to date while supply has grown by 19%."

He said that some of the slowest markets have over recent years been in the northern regions of the country, where house prices have been dropped as a result.

But weaker demand is now putting increasing pressure on southern England and the percentage of the asking price being achieved is softening, he said.

Mr Donnell said: "Overall, the market remains in a fragile state. Thin volumes and a sluggish market, compounded by seasonal and one-off events, is reflected in the volatility of this month's indicators. As the supply demand balance weakens, we expect to see slow downward pressure on prices over the remainder of 2012."

Across England and Wales, the proportion of the asking price achieved stands at 93%, a slight decrease on previous months. Prices dipped by 0.1% in August in East Anglia, the North East, North West, South West, Wales and West Midlands. They fell by 0.2% in the East Midlands, South East and Yorkshire and Humberside.

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