'Decoding' the housing market

House sales dropped by almost 20% in Scotland between April and June, compared to the same time last year.

But despite the overall drop in sales, average prices rose over the year by 4.6% to £155,691.

Here, Ron Smith, chief executive of the Edinburgh Solicitors Property Centre, tells the BBC Scotland news website what trends he reads into the figures.

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With so much data published about the housing market it should be easy to get a clear picture of what is happening to property prices, but unfortunately different reports often offer apparently conflicting information.

Housing is 'more affordable' north of the border.

Only this week we have seen Registers of Scotland report that house prices north of the border are continuing to rise at around 4% annually, while Nationwide stated that the average house price was now over 10% below the levels we observed this time last year.

So what is actually happening in the housing market in Scotland, and what are we likely to see over the coming months?

At a UK-wide level, house prices have been falling since late last year, mainly due to a lack of affordability and the tightened lending criteria on mortgages.

During this time the average house price in Scotland has continued to rise with the greater affordability of property north of the border keeping demand somewhat higher.

However, the level of inflation in Scotland in the first half of 2008 has been very low - between 2 and 5% in most areas - and in many cases the level of growth has been somewhat skewed due to a higher proportion of sales being accounted for by larger family homes, while the volume of smaller one and two bedroom flats selling has fallen.

The reality is that for those who have a sufficient deposit to secure a mortgage it will remain a buyers market for some time to come

In more recent months we have seen clear signs that demand from buyers is down. Sales volumes have fallen sharply with the number of homes sold in July at around half that seen during the same month in 2007. This has led to a considerable upturn in the number of properties available for sale on the market.

Sellers are facing increased competition and buyers who are able to secure a mortgage in a much stronger negotiating position than they have been for well over a decade.

There is increasing evidence that those sellers who are keen to secure a sale have reacted to this shift in the market and are now willing to accept the lower bids being offered by buyers.

The average premium over the asking price being achieved on properties marketed at offers over, for example, is around 8% lower than a year ago. Similarly, an increasing number of vendors who are selling properties at fixed price are now accepting offers below the original asking price.

Although it has not happened thus far, this shift in sellers' behaviour should start to be reflected in average prices in the short-term and we may start to see prices fall in some regions.

Looking ahead over the next 18 months, tightened lending criteria will continue to exert a downward pressure on prices meaning people should not expect a return to high levels of house price inflation during that time.

The reality is that for those who have a sufficient deposit to secure a mortgage it will remain a buyers market for some time to come.