House prices become more realistic

21 July 2008 / by Rebecca Sargent
Brits are finally facing up to the reality of the credit crisis, lowering the asking price on houses to reflect the current financial climate, research from Rightmove has revealed.

Until recently, homes have been on the market for above average asking prices as a result of the boom of last summer. However, it seems Brits are starting to realise that these prices are unachievable in a weak market as houses are now priced on average £4,000 less than in June.

The housing market has been at the centre of the credit crisis in Britain; as mortgage lenders tighten criteria and introduce fees, potential buyers are being pushed out of the market and house prices have dropped as a result.

Housing market activity has fallen to a record low. According to the Royal Institution of Chartered Surveyors (Rics) the average number of transactions per agent is just 15.3, forcing Brits to face up to the reality that a house could remain unsold if the asking price is too high.

Miles Shipside, commercial director at Rightmove, said: "Sellers are finally recognising that they need to undercut their rivals from the outset, rather than testing the market and dropping prices later.

"Whilst this £4,000 reduction is on top of a £3,000 drop last month, sellers' pricing needs to be at the level where deals are being done. It could be a lot better outcome to price aggressively and sell now, rather than accept a bigger reduction later as prices continue to fall."

Average unsold property numbers are up from 74 to 77, despite a fall in the number of new instructions that are coming onto the market. The mortgage market may have something to do with this as the Council of Mortgage Lenders (CML) reported a decline in gross mortgage lending to £23billion in June, down three per cent from May and 32 per cent from June 2007.

However, house prices are falling as less people are able to buy, Mr Shipside added: "The 'doom and gloom' attitude should be about the drastically low level of sales which affects the wider economy, not about falling prices. Unless you are trading down, inheriting or in danger of negative equity, the effect of falling prices is neutral or indeed good for some.

"How long the chronically low volumes continue will be greatly shaped by the attitude of the lenders. Following lenders' irresponsible lending in the late 1980s, there was a similar over reaction to risk that is repeating itself now."

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