A week of turmoil on world equity markets and somewhat drastic action by the Fed to try to avert a recession in America will have done little to bolster the confidence of housebuyers here. Although the fundamentals of the British housing market remain intact, there is a lack of confidence, which has led to a sharp fall in the number of properties that have changed hands over the past year. Prices, however, have not been so adversely affected. Most recent indicators have reported a slowdown in the rate of growth, with only small, localised price falls.

A lack of housing for sale, driven by the unwillingness of vendors to commit, is supporting the market. It is also likely to result in the number of homes sold falling close to 1m this year – less than half the annual 2m-plus of the late 1980s. This is set to remain an important feature of the market for the foreseeable future.

It should be remembered that only two in five sales each year are by households who actually “need” to move for job or family reasons. The reality is that the house-price boom of the past decade has been driven by aspirational buyers who have moved because they have been able to afford to, thanks to lower interest rates and the easy availability of credit.

These aspirational buyers are now sitting on their hands, much to the discomfort of agents. Just over 5% of homes will change hands this year, a figure close to the all-time low. Expressed slightly differently – and perhaps more alarmingly – this means that the average household is moving once every 20 years. In the late 1980s, it was more like once every eight years.

Apart from the rise in stamp duty, which adds £24,000 to the cost of a £600,000 house, the other reason for the fall in turnover has been the move to a low-inflation environment. Households could afford to move more often in the 1980s, when double-digit inflation was rapidly pushing up incomes and eroding the real value of mortgage debts. The economic success story of the past decade – namely low interest rates and low inflation – has delivered something of a sting in the tail for the housing market. While low interest rates and rising incomes have seen us bid up the cost of housing, many households today simply cannot afford to move home. This supports house prices in the short term, but may also make them more volatile.

Confidence has certainly been dented, but demand for housing still exists. The move towards more realistic pricing is under way, and may well take a further 12 to 18 months; all-important will be what happens to interest rates and the economy as a whole. Although it provides useful support for prices in the short term, low turnover could have adverse consequences for the market if it persists. For many, the thought of being stuck in their home for the next 20 years could be a call to action. Richard Donnell is director of research at Hometrack

David Smith returns next week home.economics@sunday-times.co.uk

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