LONDON (Reuters) - The number of homes changing hands fell nearly 40 percent on the year in May, spelling more gloom for the country’s estate agents and furniture retailers as a housing downturn intensifies.
Revenue and Customs said on Monday property transactions numbered 100,000 last month, 13 percent lower than in April. Experts say activity will fall further in the months ahead as a global credit crunch makes new mortgages harder to come by.
News of the big drop in transactions followed a report by property Web site Rightmove which showed sellers outnumbering buyers in Britain’s once-booming housing market by 15 to one.
“These numbers clearly highlight the very real pressure on the residential property market,” said Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors.
After years of double-digit growth, house prices are now falling at monthly rates not seen since the slump of the 1990s, raising concern the market could be headed for another crash that takes the economy down with it.
Property and retail companies are already suffering, as is Prime Minister Gordon Brown’s Labour government. Consumer confidence and house prices seem inextricably linked in Britain where two-thirds of households own their homes.
More than 15,000 estate agents are expected to lose their jobs in the next two years, according to one research group.
British sofa retailer SCS Upholstery said on Monday it was in talks over a rescue plan for its business that would leave shareholders with almost nothing. Its shares have tumbled 90 percent in the last two months.
Its rival, Land of Leather, also said last week it needed to more funding to help it cope with plunging demand. Department stores group John Lewis reported on Friday a 9.7 annual drop electricals and home technology sales in the week to June 14.
Official retail sales figures, however, showed sales jumping by an unprecedented 3.5 percent last month, despite all the gloom about consumers suffering because of soaring supermarket and energy bills.
Many economists have dismissed the staggering rise as a rogue number, flattered by the much warmer-than-usual weather in May boosting sales of summer clothing and foodstuff.
Still, electrical goods retailers DSG International, which runs Curry’s and PC World, and Kesa, which owns Comet, are set to report tough trading conditions this week.
Further bad news on the housing market is expected on Tuesday when the British Bankers’ Association releases mortgage approvals data for May.
Approvals have been falling sharply in recent months as lenders, hit by a global credit crunch, have been tightening the terms on which they will make new home loans.
The cost of fixed-rate mortgages has continued to rise despite three cuts in interest rates by the Bank of England since last December as banks face higher funding costs.
Many analysts are now predicting double-digit falls in house prices this year and next, particularly as high inflation is keeping the central bank from being able to cut interest rates.
“It is very possible that the Bank of England’s next move could be to raise interest rates, which would clearly be very bad news for the housing market,” said Howard Archer, economist at Global Insight.
“The marked deterioration in sentiment over the housing market also heightens the risk that house prices will fall sharply over the next couple of years.”