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House prices climb as demand outstrips supply

UK house prices have continued to climb, a leading industry survey showed on Thursday, supported by a shortage of homes coming to market.
According to the latest RICS UK Residential Market Survey, a net balance of 70% of respondents reported a rise in prices, with the trend predicted to continue over the next three months and the year ahead. It compares to an upwardly-revised net balance of 69% in September, and is the first increase in the house price balance since May.

Most economists had been expecting the balance to ease, after stamp duty reverted to its normal level at the end of September, potentially cooling demand.

There was also a dip in the volume of sales agreed in October, giving it a net balance of -9%.

Respondents attributed both the dip in volume and the rise in house prices to a lack of stock. The new buyers enquiries balance increased to 10% from 1% a month previously. But the new instructions balance recovered only to -20% from -33%.

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, said: “Although the mood music around interest rates does appear to be shifting, for now the stronger influence on the housing market is the ongoing imbalance between demand and supply.

“The inventory on agents’ books appears to have slipped back towards historic lows, and this seems to be underpinning both the current price trend and expectations for the next year.”

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The housing market remained strong in October, though it remains to be seen whether potential buyers remain so eager when new mortgage rates increase.

“Mortgage rates are set to rise significantly. The two-year overnight index swap rate has leapt to 0.9% from 0.3% three months ago, and spreads for mortgages with a 60% or 75% LTV ratio have little room to full further.

“Admittedly the link between changes in mortgage rates and house prices isn’t mechanical. But with consumers’ confidence currently below average, and real disposable incomes set to fall over the year, it is highly unlikely that house price growth will retain its current momentum.”

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