House prices fall as demand declines

House prices in England and Wales edged lower during July following a slide in demand from potential buyers, research indicated today.

The average cost of a home dropped by 0.1% during the month to £158,700, the first fall recorded by the index for 15 months, according to property intelligence group Hometrack.

The decline was driven by a fall in the number of people looking to move home, with estate agents reporting a 1.3% drop in the number of new buyers registering with them.

At the same time, new properties continued to come on to the market, with estate agents reporting a 3.6% jump in the number of homes they had on their books.

The group said the latest fall in demand reflected a trend seen during the past five months, with concern about the economy and talk of impending spending cuts taking their toll on people's confidence in the market.

The change in conditions, which has seen the market shift from being a sellers' one to a buyers' one, has led to the average time a property takes to sell increasing to 8.7 weeks, a level last seen in August 2009.

Sellers are also getting a lower proportion of their asking price, at an average of 94%, down from 94.3% in June.

This measure looks set to continue falling during the coming months, as the easing in the mismatch between supply and demand relieves much of the upward pressure on prices, while increased competition for buyers will lead to sellers having to settle for lower sales prices.

House prices rose in only 5.2% of postcode districts during the month, while they fell in 12% of areas.

But there was a ray of hope among the otherwise gloomy figures, with the number of sales agreed rising by nearly 4% during the month.

Richard Donnell, director of research at Hometrack, said: "Levels of demand for housing have been slowing for the last five months.

"Prices moved lower by 0.1% with the year-on-year rate of growth slowing to 2%.

"Further modest price falls are inevitable over the second half of the year as the volume of homes for sale continues to rise and demand remains weak on the back of concerns over the wider economic outlook and uncertainty over the impact of recently announced cuts in government spending."

House prices fell in five regions of England and Wales during July, with London leading the way with a 0.2% drop. Prices were static in all other regions.