Despite lower growth in 2007, housing market remains buoyant, according to Q3 research from CBRE

Latest Q3 research from the residential team at CB Richard Ellis predicts house price growth of 7% in 2007, but forecasts lower growth of 3% in 2008. However, CB Richard Ellis also fully expects London to outperform, with growth of 15% in 2007 and around 10% the following year.

Although house price growth has softened over the quarter, it remains buoyant at 9.3% (compared with 10.2% in Q2) according to Nationwide. It will take some time for the slowdown in activity to fully feed through to house prices, and during the transition period we are likely to see mixed messages due to differing sources, methodologies and model construction, as evident in the current round of house price releases.

For example, the RICS report a more muted outlook than Nationwide and suggest prices are starting to fall. Halifax also show growth falling in September, but this contracts directly with Rightmove, who report a 2.7% price increase in the same month.

Leading indicators include:
• A fall in the number of registered buyers and sellers; according to Hamptons International there are now only 6.6 buyers for every property on the market compared to 8:1 in the last quarter.
• The National Association of Estate Agents (NAEA) report nearly 11% of all sales fell through in August 2007 (the latest data available), in comparison with 9.6% this time last year, and the highest proportion since the survey began.
• Mortgage approvals are also weakening – having been relatively static since May, they fell to 109,000 in August, a year on year fall of 9%.

The slowdown can largely be blamed on higher interest rates, as the MPC has increased rates by 125 basis points since August 2006. This has fed through almost directly to mortgage rates, worsening affordability as a result; a 25 basis point increase in mortgage rates adds around £15 to the monthly payment on a £100,000 mortgage. For example, the CML report affordability has continued to worsen for first time buyers, with mortgage interest payments now accounting for 20% of income, compared with 17% this time last year.

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