London leads house price recovery

The property market is showing signs of an emerging recovery. Recent figures from the Office of the Deputy Prime Minister (ODPM), Rightmove and Knight Frank point to a stronger national picture with London showing particular improvement.

The ODPM index rose by 0.6% m/m in November, taking the annual rate of house price inflation to 2.5%. Scotland and Northern Ireland continue to report the strongest gains, and the Northern regions are also showing signs of renewed strength. But, according to the ODPM figures for December, the South, South West and the Midlands continue to paint a negative picture.

This might not be cause for concern. The ODPM?s latest figures reveal that London house price inflation rose to 2.2% in November, up from -0.5% in October. Economists believe these figures could be an early sign that higher demand has begun to raise prices. The Knight Frank Prime Central London Residential Index supports this, with house price growth of 8.2% in 2005, the highest annual growth since 2001. Prices in Prime Central London grew by 1% in December, following an incredibly strong end to the year with price rises also noted in October and November.

Knight Frank?s Head of Residential Research, Liam Bailey, comments ?December saw a break from the traditional Christmas slowdown, with a higher than expected number of transactions completed (13% above the norm). Wide publicity surrounding City bonuses prompted some purchasers to attempt to avoid competition and the forecast increase in property prices early in the New Year, stemming from bonus money entering the market.?

Up-to-date asking price data from Rightmove also suggests evidence of emerging

recovery. Press reports this morning (Monday) focused on the fact that asking prices rose by 0.9% in the first five working days of the year.

Although this simply reversed falls in the final weeks of last year, over the last four weeks prices have continued to rise by 0.1%. Interestingly, these price rises were almost entirely driven by London and the South East where prices rose by 1.3% over the last month.

In the North and Wales rises of 0.4% or less were also reported by Rightmove but across the rest of England asking prices fell by between 2% and 4%.

Thus ODPM and Rightmove are reluctant to pronounce full recovery on a national level. Despite the resurgence in London and the South East, the subdued economic outlook and poor levels of affordability in the housing market suggest recovery will be a lengthy progress.

But Knight Frank is positive that 2006 bodes well for the top end market. ?The very strong performance of the Prime Central London market in 2005 underpins our forecast that London, and in particular in the top end of the market, will outperform in 2006. Our forecast is that prices will grow by 7% in Prime Central London in 2006 compared to 5% for the overall Greater London market and 2.5% for the UK,? Mr. Bailey explained.

Similarly Savills expect the optimism around City bonus payouts to have a positive impact on values in the prime central London residential market and anticipate a 5% growth. But Savills is also receiving positive vibes about the country house market. ‘We expect the highest growth in values in the prime country markets to be in the Homes Counties in 2006 (4%) with the top end of the market taking the lead’, said Harriet Black, of Savills Research Department.