House price boom grinds to a halt

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The Independent Online

House price inflation froze last month, according to a report published today that provides fresh evidence that the Bank of England has succeeded in applying the brakes to the housing market.

House price inflation froze last month, according to a report published today that provides fresh evidence that the Bank of England has succeeded in applying the brakes to the housing market.

The Royal Institution of Chartered Surveyors (Rics) said house prices stabilised in July for the first time in a year as buyers and sellers expressed an "air of caution", bringing the curtain down on nine months of runaway growth.

Prices were static in the Midlands and East Anglia, while in the South-west they fell for the first time since the Iraq war last year. In London and the South-east, the number of surveyors reporting price falls picked up, the report said. Only the North-east and Scotland showed "robust" price rises.

The figures will stoke the City's belief that the interest rate may have almost peaked. They back up the Governor of the Bank of England's belief that there will be a "sharp slowing in house price inflation".

Rics said the number of surveyors reporting price rises outnumbered those seeing a fall by only 3 per cent, down from 17 per cent in June and a recent high of 45 per cent in March. The survey will shock most economists, who had expected the housing market to remain firmer. "Buyers and sellers are showing a noticeable air of caution. Unlike last year, the supply of new property coming to the market has remained low and kept market conditions fairly tight, which is a major factor underpinning prices," Ian Perry, Rics' housing spokesman, said.

The survey adds to the gloom enveloping the housing market. Last week a report by the property website Hometrack warned that house prices had reached a "plateau", and Countrywide, the estate agency group, said its house sales in July were 25 per cent down on the same month last year. Recent data has also showed mortgage approvals have slowed.

Alan Castle, at Lehman Brothers, said: "Rics has got a pretty good track record at predicting turning points in the housing market over the past 20 years. The MPC [Monetary Policy Committee] puts a lot of weight on the Rics survey, which goes some way to explaining some of the doveishness the Bank was expressing last week." Mr Castle, who has long believed interest rates would peak at the current 4.75 per cent, predicted the housing weakness would start to come through in the Nationwide and Halifax surveys, which have remained strong.

Mark McMahon, at Lombard Street Research, said: "From a policymaker's point of view it is encouraging if the housing market is slowing. But one month alone doesn't constitute a change of trend."

Rics' members blamed the slowdown on the Bank's back-to-back interest rate rises in May and June. New buyer enquiries fell in the past three months, even allowing for a summer lull, they said. The average number of sales per chartered surveyor fell to 28 for the three months to July, from 29 during the period to June. Meanwhile, the stock of unsold houses edged up for a second successive month, climbing to 60 in July from 58 in June.

Mr Perry said: "The drop in the number of buyers looking around has been less pronounced than during the Iraq war, which is a reflection of today's stronger economy and firmer labour market." He predicted a "steady demand" for property as autumn approached, but "only on those [houses] that are correctly priced".

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