House prices 'starting to drop' across the country but 'slump not likely'

The number of new buyer enquiries at estate agents is declining at its fastest pace since March 2003, says the latest study by the Royal Institution of Chartered Surveyors.

The percentage of agents reporting a fall in new buyers was far higher than the proportion reporting an increase, with the RICS saying the net majority was 51 per cent.

At the same time, the net majority of agents reporting price falls has hit 14.6 per cent, which is the worst situation since September 2005.

The market stagnation is also being reflected in a fall in the number of owners putting their properties up for sale.

The largest price falls were reported in East Anglia, Wales and the Midlands.

Smaller falls are being seen in the South-East, South-West, Yorkshire and Humberside and the North- West.

Scotland bucked the trend with a majority of agents reporting an increase in prices.

Some analysts believe we are seeing the beginning of a downturn that will bring price falls of around 6 per cent over the next two years across the country.

Others suggest that, because prices have risen much faster than wages in the last decade, only a major price slump can bring them back into line.

The RICS says the introduction of Home Information Packs, required for all homes with three or more bedrooms that are put up for sale, has brought a reduction in the number of homes available.

It appears some potential buyers are waiting to assess the impact of the packs before entering the market.

But RICS spokesman Jeremy Leaf does not believe a slump is likely.

"Although house prices continue to fall, the underlying economy remains strong," he said.

"A major correction in the market seems unlikely while economic growth is above trend and employment conditions remain buoyant.

"The combination of rising interest rates, the introduction of HIPs and volatility in the financial markets resulting in tightening of lending criteria has certainly affected the confidence of buyers and sellers.

"As a result, some would-be buyers are turning to the rental market.

"But others, conscious that the next move in interest rates is now likely to be down rather than up and that market meltdown is highly improbable, are seizing the opportunity to negotiate with more flexible vendors in a less competitive market-place."