Boom turning to gloom as house prices begin to show signs of falling
The report came as the chancellor, Alistair Darling, called on big international banks to examine their behaviour and think about a return to "good old fashioned banking".
"They [borrowers] need to ask themselves 'can I repay this?' and lenders need to ask themselves, 'If it goes wrong can I get it back?'," Mr Darling told the Daily Telegraph. "Institutions themselves need to open their own eyes and be more honest. When someone comes up with a fantastic way of making money they need to ask, how is this money being made and what are the risks?"
Surveyors around the country told Rics last month that sellers were finding it harder to get their asking price as higher borrowing costs and the fear of more interest rate rises before the end of the year made purchasers reluctant.
The north-west, West Midlands and East Anglia were some of the areas to see prices slip. London stood out as the only place continuing to see rising prices and has so far been little affected by the turmoil in international financial markets, Rics said. Agents say the capital's housing market has been supported by the £14bn of City bonuses awarded this year.
But elsewhere, the market is fragile. "Potential house buyers have become far more cautious as they wait and see what effect interest rate rises will have on household finances," said Ian Perry, spokesman at Rics.
"Affordability is at its most stretched in over a decade and many will worry that rising mortgage repayments will prove a step too far. The market will soften further going into the autumn."
Last night there was more bad news for would-be buyers. The Halifax and Abbey, Britain's two biggest lenders, revealed they were increasing the rates on many of their tracker home loans, even though the Bank of England kept interest rates unchanged last week. Both are increasing the rates by between 0.1% and 0.2% for new customers. Abbey's changes took effect yesterday while Halifax's come in tomorrow. Existing tracker borrowers are unaffected.
Rics's survey found 1.8% more surveyors reporting a fall rather than a rise in house prices during August. That was a hefty drop from the 10.8% reporting a rise in prices in July, following a high of 27% in the spring.
The report also showed the ninth consecutive monthly drop in new buyer inquiries, with 37% of surveyors reporting a fall rather than a rise in buyer numbers. Just a year ago, 26% were reporting an increase in buyers rather than a drop.
John Andrews, at Doolittle & Dalley in Worcestershire, said: "This year in August the volume of sales has been lower than the last two years, certainly."
August generally tends to be a quiet time for the housing market, but surveyors said the slowdown was not merely seasonal. Surveyors also said that new instructions to sell property fell for the third month in succession. The one bright spot for homeowners is that falling inflation and the money market woes mean interest rates have probably peaked at 5.75%.
£14bn: the amount of City bonuses awarded this year, which has helped London alone buck the trend in falling prices
51%: the decline in the number of four-bedroom houses on the market
Explainer: property slowdown
The drop in prices indicated by today's Rics survey is significant because the organisation talks to lots of estate agents around England and Wales at the sharp end of the house buying and selling process.
It differs from such indices as the Nationwide and Halifax which measure transactions based on mortgage lending.
The Rics survey also picks up buyer numbers, which the others do not. Today's survey shows those have been falling for nine months.
While one should never get carried away with one month's number, the Rics price index has been moderating since the spring and has now gone negative, as it did in early 2004 when the Bank of England last raised interest rates significantly and when the housing market slowed right down.
Does all this mean the housing market is about to fall off a cliff? That is difficult to say and will probably depend on future rate moves from the Bank of England. But prices are a lot higher now than even two years ago and affordability is much more stretched. Demand has weakened sharply although supply is still constrained by low rates of house building.
The conventional wisdom, judging from previous booms and busts, is that you can't have actual falls in prices on a sustained basis without rises in unemployment. As yesterday's figures show, unemployment has fallen to its lowest for two years.
Britain's housing boom has been part of a bigger, global story, as prices everywhere have responded to the ultra-low interest rates of recent years.
But rates have risen sharply around the world and prices are now falling in the United States, Spain and Ireland and are looking soggy in France.
Rates of new housebuilding have been much higher in those countries in recent years than in the UK and there is now oversupply, a situation which is not the case here.
But prices are ultimately set by supply and demand. And if demand keeps falling here at the pace it is now doing, prices will eventually follow.