Housing sector heading for worst year in a decade as deals dry up

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House price inflation has fallen to its lowest level since 1996, according to figures published today by Rightmove. The property analyst will warn that 2005 is likely to be the worst year for the housing market in a decade, with the number of transactions falling to a 10-year low.

House prices are increasing at an annual rate of 4.9 per cent, Rightmove says, the lowest figure since the second quarter of 1996. Based on Land Registry figures for the first quarter of this year, Rightmove predicts less than 1.1 million properties will change hands this year, the smallest number since 1995.

The figures also show there has so far been no pick-up in the housing market this spring, traditionally the busiest season of the year for estate agents. The average agent now has 70 properties on its book, up from 67 last month, reflecting a failure to reduce over-supply in the market.

Miles Shipside, the chief executive of Rightmove, warned that people selling houses were often unrealistic about the value of their homes. Asking prices rose by 0.3 per cent last month, he said, despite widespread publicity about problems in the housing market.

"We are heading for a nasty low that sellers seem to be oblivious to," Mr Shipside warned. "There is pent-up demand from buyers, which is how this downturn differs from the housing market crash of the Nineties, but house prices have risen so far that they are no longer able to pay through the nose."

Rightmove's figures follow warnings last week that the London housing market, regarded as an indicator of the health of the property sector nationwide, has slowed particularly markedly. The number of homes sold in the capital fell by one-third in th6e first quarter of the year, the Land Registry warned.

The latest figures contradict the more positive news of recent weeks. Halifax bank and Nationwide Building Society both reported a bounce in the housing market during April, while figures for March from the Bank of England showed that mortgage approvals had risen to their highest level since last August.