Simon Rubinsohn, RICS Chief Economist, provides comment on the December 2010 RICS Housing Market Survey.
One aspect of the latest RICS Housing Market Survey that was little noted in the commentary on the numbers was the changing relationship between new buyer enquiries and new instructions.
The former is effectively a measure of the change in demand while the latter tracks the change in supply. Although both series are net balances, the gap between the two has historically been a good lead indicator of the trend in house price inflation.
In recent months, the gap has been narrowing and in the December data, it actually turned positive with the effectie change in demand being greater than the change in supply for the first time since the end of 2009.
This helps to explain the reason why we expect house prices to remain broadly stable this year, falling a little further over the next few months and then edging upwards in the latter part of 2011.
A key risk to this view is, however, the interest rate outlook. Yesterday's higher than expected inflation data raises the possibility that the MPC will be forced to act to tighten monetary policy rather sooner than previously envisaged.
Higher interest rages through the course of this year will inevitably hit consumer sentiment at a time when households are just coming to grips with the VAT hike and face the uncertainty stemming from the next round of public spending cuts.
In these circumstances, demand for property could prove softer than we anticipated in our current forecast for the housing market. That said, it is worth bearing in mind that any attempt by the MPC to rebuild its credibility by raising interest rates over the next few months will do little to bring inflation to heel as the key drives of the latest move upwards in CPI are largely tax or commodity related.
Article by Simon Rubinsohn, RICS Chief Economist from http://www.rics.org/site/scripts/news_article.aspx?newsID=2033