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September 20, 2005 3:00 am

Increased demand but house prices still falling

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New buyers are moving back into the housing market as the number of properties coming up for sale has stopped growing, estate agents reported yesterday.

The increased demand without a corresponding rise in supply has improved confidence among estate agents sharply, coming after the Bank of England cut interest rates by a quarter of a percentage point to 4.5 per cent in August.

The rise in the level of new buyer interest suggests that many households have been waiting to be sure that the housing market is not going to crash before putting in an offer on property.

Only a small majority of estate agents, surveyed by the Royal Institution of Chartered Surveyors in August, expected house prices to fall over the following three months.

Before then, a large number was pessimistic; previous monthly surveys in 2005 found more than 20 per cent more expected prices to fall than rise.

Although sentiment am-ong property professionals has improved, Rics reports today that house prices were still falling in August.

On a non-seasonally adjusted basis, 34 per cent of agents reported a fall in prices over the previous three months with only 7 per cent reporting a rise. This gave a net balance of -27. The seasonally adjusted net balance was -26, the least pessimistic figure since September 2004.

Milan Khatri, of Rics, said signs of stability in the housing market had been emerging before the cut in interest rates, but the rise in buyer interest was a positive sign: "The downturn is drawing to a close and the cut in rates almost guarantees there will not be another decline in the next 6 to 12 months."

Most of the forward-looking indicators of the housing market in the Rics survey also showed an improvement. Stocks of properties on agents' books were still 17 per cent higher than a year ago, but beginning to fall. The number of reported property sales increased in August and newly agreed sales showed the first big rise since March 2004.

Recent surveys of estate agents have shown falling prices while estimates of house price inflation has shown a broadly stable housing market. This Rics survey showing falling prices in the three months to August continues to portray a weaker market than the prices of houses bought and sold, measured by the FT house price index and Nationwide among others.

The difference has led to speculation, backed by anecdotal evidence from agents, that only the best properties have been selling so the transactions have been at a higher level than usual.

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