A lack of sellers combined with new sellers to the housing market has helped push up asking prices by 15% during May, the largest increase in monthly asking prices since 2003 according to Rightmove’s latest data.

Rightmove found that many new sellers are likely to be pricing high for fear of eroding equity and the worry that they may not be able to borrow as much money for a new mortgage on their next home.

However, choice on the housing market remains depressed with 61,000 new sellers this month compared to 135,000 in May 2008.
While new homes stock is in short supply, the existing inventory of unsold stock remains stubbornly high, dropping from 72 to 71 per estate agency branch. This points to a high level of effectively unsalable stock, and many of these sellers will be stuck in the equity immobility trap and therefore unable to reduce price further without compromising their ability to move. Lenders are short of funds and more sensitive to risk, and therefore denying movers access to their better mortgage deals unless there is a substantial deposit, often 25% plus.

Main Points
- May Average Property Asking Price £227,441
- New sellers push up asking prices by 2.4%, driven by a mixture of ambition, optimism and necessity
- Prospective buyers with nothing to sell are increasingly active, encouraged by 59,072 properties reducing asking prices by 2% or more in the last 4 weeks, with an average reduction of 6.8%

Not just first time buyers feeling the squeeze
Rightmove also noted that it is not just first time buyers that are feeling the financial squeeze in credit. Three groups of existing property owners who are also affected are the:
‘Equity releasers’ who habitually withdrew cash during the 2001-2008 re-mortgage spree. Encouraged by cheap and easy credit and rising property values they funded their lifestyles by regular re-mortgaging and equity release. Figures from the Council of Mortgage Lenders show that in the eight years from 2001 to 2008, the total value of remortgages increased by 460%
compared with the period from 1993 to 2000. With falling prices, many will now have been left without enough equity to fund a move.

- ‘Recent buyers’ with no or low deposit, and now in or close to negative equity, Some would now be prospective trader uppers having outgrown their property, but with falling prices and little initial equity, they face a very difficult task to raise a higher deposit than they did when they last bought.

- ‘Equity losers’, still with up to 25% equity but due to falling prices have lost their substantial equity cushion and are now borderline to get the best mortgage deals should they move. Sums that would have stacked up two years ago are now not so compelling, especially when you take into account the costs of buying and selling.

Rightmove also added that sellers who are trying for a higher price should note that Rightmove has published 59,072 price reductions of greater than 2% in the last 4 editions of Property Deal Weekly, its online magazine dedicated to weekly price reductions. Even more pertinently, the average reduction is a substantial 6.8%, representing an average £18,714 cut off the asking price in an attempt to lure a buyer.

Miles Shipside, commercial director at Rightmove comments: “The long term worry is that the supply side of the housing market is now compromised for several years to come. Developers have shed much of their workforce so could struggle to increase capacity, and we are now seeing the lowest number of new sellers of second hand homes for the month of May since 2003. Many people who might have wanted to take advantage of the spring selling season to trade up will be victims of equity immobility. The choice of when and how to move is now out of their hands. While some of the impetus behind the increase of over £5,000 in average asking prices will be due to ambition or optimism, it will also be out of necessity as new sellers attempt to scrape together enough equity to move.”

“Equity-poor home owners are either not coming to market, or are having to price too high. The scale of the problem is potentially far worse now than in the 1990s downturn, as re-mortgaging activity was then in its infancy having been strictly controlled until the deregulation of mortgage markets in 1986. It took off when in 2001 when lenders seemed to lose all sense of prudence, and there followed eight years of equity abuse that eroded the cushion that a decade of rising house prices had built up. This is one of the factors restricting the volumes in the housing market, and will only be resolved by affordable
mortgage products at higher loan-to-value ratios or substantial increases in property values. It is impossible to put a timescale on this”

Mr Shipside added: “While buyer sentiment is improving, with email enquiries to agents via Rightmove so far in 2009 running at 109% ahead of last year, the number who can proceed has been savaged by the mortgage famine. Pricing below your local competition, if you can, is vital in order to achieve a sale. With deals being done at prices 25% below the peak of the 2007 boom, it’s not surprising it’s taking some sellers a long time and some hefty price slashes to adjust to the new 2009 price floor.”