House Price Falls Ahead, Suggests Barometer Index

Of all the indices that are supposed to display the hallmark of a barometer, none fit the bill more precisely than the monthly index from the Royal Institution of Chartered Surveyors (RICS). This morning the latest index was out. It pointed to further falls ahead, but left a hint of promise, too.

The RICS headline index dropped to minus 32, the lowest reading since May 2009. The index has now been negative for two months in a row.

RICS also provides data relating to developments beneath the surface. Its index tracking new enquiries, which relates to demand, fell to minus 17, the lowest reading since 2008. The index tracking new instructions, which relates to supply, stood at plus 12. This index has been positive for seven successive months now.

But while the RICS scores may suggest house price falls in the months ahead, RICS reckons it may have detected signs of changes even further ahead. First of all, the reading measuring new instructions, while still positive, was at its lowest level in four months. RICS said: “This suggests ... that the initial surge in supply following the abolition of HIPs has started to fade.” Furthermore, the RICS reading measuring expectations of sales rose. RICS said: “The net balance for this series rebounded from +8 to +18, its best level since May.”

In 2009, demand for property was very low, but supply was even lower, hence prices rose. Right now, we seem to be seeing the opposite scenario. But when both demand and supply are so low, it only takes small changes to affect the balance and alter the outlook for prices.