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Housing demand falls 10%

House prices will be impacted over the next six months as demand for housing continues to fall, Hometrack has warned.
Its research has revealed that demand has fallen 26% in the last six months, with a 9.5% drop in demand in January alone, while supply recorded its largest monthly drop in four years of 5.4%.
Hometrack said that a seasonal fall was expected, but noted that compared to a year ago the underlying weakness of the market has become more pronounced. By comparison, demand fell 2.7% in January 2010.
This is likely to be compounded further by concern that rising inflation will result in interest rate rises, so deterring people from moving house.
Nevertheless, Hometrack predicted that supply will drop further over the next two quarters, which will begin to act as a support to pricing over the course of the year.
Average house prices fell 0.5% in January to £153,600, bringing annual growth to -2.2%. Hometrack recorded property price falls across 37% of the country, slightly up from 36% in December.

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Richard Donnell, director of research at Hometrack, said: “There are no signs of a New Year bounce for the housing market, as 2011 begins with a sluggish start. The supply of new homes coming to the market continues to fall but it is the change in demand that we need to pay most attention to, as this will have the greatest impact on pricing levels in the first half of 2011.
“Concerns over the economic outlook and the biting reality of spending cuts are doing little to improve a fragile market defined by weak consumer sentiment and a lack of demand for housing.
He added: “As we head into the year, property prices are set, in the short term, to remain under downward pressure.”
However, Hometrack said that interest rate rises will not directly affect many households, with two-fifths of house sales driven by cash buyers and 45% of households without a mortgage.
In addition, the state of the housing market varies widely across the regions, with the average time to market 11.8 weeks in the North and Midlands, compared to 8.8 weeks in the South.
Hometrack has also tracked the performance of housing markets with high and low levels of public sector employment. It said that it was still too early to see any evidence of spending cuts having a material impact on local markets but that this may change over the course of 2011.