Jeff Salway: Housing market set for flat period – and poll result is blameless

THE hung parliament will be blamed for all manner of economic ills over the coming days but suggestions that it will have a detrimental impact on the housing market are wide of the mark.

The housing market recovery has already run out of steam and there is little prospect of it regaining momentum over the coming months, when house prices will stabilise or even fall once more.

More evidence emerged this week to suggest that the increase in house prices of the past year has finally levelled out or is in the process of doing so.

Mortgage approvals averaged just 47,886 for the first three months of the year after reaching a recent peak of 59,572 in November, according to the latest mortgage figures from the Bank of England, which reported an 83 per cent drop in net lending in March.

And Halifax yesterday said house prices fell by 0.1 per cent month-on-month in April, the second decline in three months.

Lenders blame the slow start to the year on the harsh winter and the end of the first stamp duty holiday on Hogmanay, after which the threshold at which the tax was payable returned to 125,000 (although first-time buyers are now exempt from stamp duty on properties below 250,000, as of 6 April).

Pre-election uncertainty may also have contributed to the lack of housing market activity in March, but that would imply that we can now anticipate a post-election resurgence.

However, both mortgage approvals and transaction levels are struggling to recover the ground lost in the early weeks of 2010 and the chances of a post-election housing market bounce are remote.

This housing market is dictated primarily by the ability and willingness of banks and building societies to lend and barring a significant shift in unemployment rates in the coming months they will remain the key factors determining the health of the market.

Economist Howard Archer of IHS Global Insight this week said the latest Bank of England data underlined his view that house prices would be erratic over the coming months and may remain flat over the rest of the year.

Furthermore he pointed out, as several market experts have in recent weeks, that more houses are coming on to the market, easing the upward pressure on prices that last year came from an excess of demand.

Some housing market commentators believe Scottish prices will continue to be driven by a lack of supply, but their claims are undermined by growing evidence to the contrary.

SELL in May and go away, don't come back till St. Leger's Day – 11 September this year – is an old adage that supposedly reflects the tendency of stock markets to either take a breather or a dive during the summer months as the City tends to its pile in the country.

As with most good clichs, the substance is questionable. Since 1984 the market has fallen between May and September in 13 years, though there was only an annual dip in six of those years.

However, Graham Duce of Aberdeen Asset Management, has pointed out that in his 22 years in the industry, only on eight occasions would investors have benefited from selling in May and coming back four months later.

Over that time the FTSE has averaged a drop of just 0.49 per cent between the end of May to mid September – not a decline that's worth the oft-forgotten costs associated with getting out and buying back in.