UK housing sentiment slumped to record lows in April, underscoring continued weakness in the sector and piling pressure on the Bank of England at a time when snowballing inflation could force it to keep interest rates on hold.
Nearly all the surveyors polled by the Royal Institute of Chartered Surveyors reported falling prices for the month, with only 5.9 percent saying they saw price rises. The much-watched gauge of market buoyancy is at its lowest point in its history and well below levels seen during a previous hosing correction in the early 90s.
The widespread declines weren't caused by a glut of properties on estate agents' books, however, as new instructions to sell property fell for the tenth month out of eleven, according to the data.
New-buyer enquiries tumbled below levels seen in the wake of the Northern Rock collapse, RICS said in the report, suggesting tighter lending conditions and stubbornly high interest rates were continuing to put people off from buying their first home.
Cash-rich buyers could take advantage of the easing prices, but the outlook for the sector is uncertain.
Many analysts fear that the constricting mortgage environment could dump surplus houses into the market, as fixed-rate periods are replaced with sharply higher interest rates, forcing at-risk home owners to sell their properties.
Inflation could exacerbate the situation as the Bank of England may be helpless to bolster the housing market by lowering its base rate. Factory-gate inflation rose at a record pace in April and the consumer price index rose to 3 percent Tuesday, according to the Office for National Statistics, well above the BoE target of 2 percent.
"We think it’s a toss of a coin whether the Bank of England will cut (interest rates) further, we think they are more worried than many people believe about inflation, and the fact that it is likely to creep higher," Elga Bartsch, European economist from Morgan Stanley, told "Power Lunch Europe."