Rightmove says:

Property buyers appear to have understood the Bank of England message to be more conservative with their spending. However, asking prices are still not coming under control, widening the gap between the expectations of buyers and sellers.

There are signs of a healthier market, as one would expect in the Spring. But it is still very much a buyers' market, with an oversupply of property on the market left over from the slower market of the last 9 months. Consequently transactions are below the normal levels for this time of year. Inspite of these more difficult market conditions, the last 4 weeks has seen 106,000 new sellers and their estate agents increase average asking prices by 1.3% (£2,577) to a new record level. House price rises can only be sustained if demand from buyers consistently exceeds supply. This appears highly unlikely for the foreseeable future from analysis of the key market indicators.

Asking prices increased on average by £2,577(1.3%) over the past 4 weeks to £197,539. A third consecutive price rise has added £8,030 (4.2%) to the average asking price this year. This month's record beats the previous all-time high by an extra £1,341 which was set in July 2004 when the average asking price was £196,198.

Miles Shipside, Commercial Director of Rightmove.co.uk observes, “It will take much higher interest rates or rises in unemployment to significantly lower sellers' price aspirations. As neither of these economic factors are on the horizon, buyers will have to continue shopping around to find the sellers who are keener to sell. These record asking prices aren't reflecting the fact that we have been in a buyers' market for the last 9 months.”

Volumes of sales between Easter and the onset of the summer holidays give a good indicator of the number of sales for the remainder of the year. So this is a crucial indication of the health of the property market. The traditional Spring upturn in sales activity has belatedly arrived, though not as marked as in recent years. Whilst the forward indicators are showing a swing from excessive supply towards increased demand, there is still a lot of slack to make up compared with the Spring markets of recent years.

Time on market falls from 82 days to 73 daysSellers will be encouraged with the news that time on market has fallen by 11% in a month to 73 days.

However this is still historically high compared with April last year when time on the market was 54 days. Shipside comments, “With buyers traditionally looking to purchase at this time of year, we would expect time on the market to keep dropping as long as buyers continue to be active. Feedback from estate agents is that properties which are accurately valued for the competitive market are the ones that are selling quickly, so this drop in time on market hides the fact that some properties are taking a lot longer to sell, if indeed they sell at all”.

Property levels per agent stop rising The number of properties for sale per estate agent has remained static at 67, halting the upward trend in stock levels of recent months. This indicates that sales volumes are beginning to shift up for the first time this year. Nonetheless stocks are some 29% higher than this time last year. Miles Shipside says the buyer is still very much in control. “Whilst there is a halt to the growth of properties for sale in estate agents windows, there is still plenty of choice, so it's very much a buyers market. Buyers are making lower offers where sellers aren't being realistic. There is a danger that if buyers' sensible offers are not accepted, sellers will lose out to a more negotiable neighbouring property instead.”

Properties coming off the market exceeds new supply. This month sees demand exceed supply for the first time this year, with the number of properties coming off the market exceeding the number of newly marketed properties coming on. This is to be expected at this time of year as a pick up in sales take properties off the market. The turnaround is  encouraging following last month's worrying imbalance where supply severely exceeded demand. Shipside adds “Estate agents are reporting that some chains of buyers from last year are now finding they can all move as there is a first time buyer at the bottom. In order to attract the first time buyer, everyone involved in the chain will need to reduce their price to pass this reduction down the chain. It's the norm to have to be creative in a tougher market, but not all sellers are willing to play ball by sharing the reduction burden.”

If asking prices continue to rise and new sellers refuse to be negotiable on their aspirations, the housing market faces the possibility of stagnation. There is growing evidence from estate agents and mortgage lenders pointing to low transaction levels for the rest of 2005.

“It's a crucial period for the housing market in 2005” says Shipside. “With supply having exceeded demand for the last 9 months, sellers and estate agents have to become more accurate in their asking prices and more negotiable to offers in order to achieve a sale and prevent stagnation.”

“Pricing realistically at the outset of marketing is now more important than ever with the change from a sellers to a buyers market,” advises Miles Shipside. “We've got a two tier market where some properties are accurately priced to sell and others that are thousands of pounds more for a similar property in the same area. Some new sellers appear to be looking at other asking prices of similar properties around them, and are understandably using that as evidence to ask for similar figures themselves. This is not helped by some agents continuing to over-value properties to win instructions in an attempt to recover lost revenue following a bleak 9 months.”

The market is currently trapped in a vicious circle of upwardly spiralling asking prices, not matched by buyers' actual willingness to pay. Actual sold prices achieved are often about 10% below what sellers could have expected in the boom of last Spring. The more ambitious sellers and their estate agents seem to be ignoring the reality that the market is not nearly as buoyant, or perhaps do not have the hard evidence to dissuade them otherwise.

This article was previously published in issue 200 of MoneyWeek magazine. For all the latest up-to-the-minute information on this topic, with our specific investment advice, start your 4-week FREE trial now!.