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Morning Line: The house price double dip

A couple of surveys showing house price rises slowed in June – a 0.1% increase according to Nationwide – and talk of a housing crash begins immediately. Is this the tipping point?

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by Chris Marshall on Jul 01, 2010 at 11:46

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A couple of surveys showing house price rises slowed in June – a 0.1% increase according to Nationwide – and talk of a housing crash begins immediately.

Actually, the small Nationwide rise is the most buoyant of the major reports: Land Registry reported a 0.2% fall for May, while Halifax recently reported a second straight month of house price declines.

House price indices have their flaws, often producing conflicting results, and are heavily geographically skewed. But this convergence looks compelling.

Up to now you could partly attribute a cooling market to uncertainty ahead of the general election and what the budget austerity measures would look like.

There has been a steady rise in the number of houses coming onto the market, something which, according to estate agents, the removal of home information packs has accelerated. The demand is not there to meet this increasing supply and already sellers are reducing their expectations to court these buyers. As I write this a Bank of England report has just been released showing that lenders expect mortgage availability to fall back in the next three months. This, said the report, in part reflects some lenders’ expectations that wholesale funding market conditions might tighten.

First-time buyers are not surprisingly in no rush to get into the market, which Nationwide’s figures show remains far more expensive for them than the long-term average.

In fact there is evidence of a slowdown everywhere you look. The revelation that we can expect 1.3 million job losses in the next five years, which dominated UK news yesterday, will be a reminder to potential buyers that they should be saving and sitting tight. If the threats of ‘Austerity Britain’ still remain an abstract concept for many, then this may just prove a wake up call.

Of these job cuts, about half come from the public sector. The so-called ‘public sector recession’ is something of a misnomer – how can the 25% cut in government departmental budgets and job losses this will entail sit in isolation from the private sector? It can’t and we don’t know how severe the impact will be. But we do know living standards will not be improving. And we do know that in some areas of the country around half of the jobs are in the public sector. I doubt many of them will be holding up the housing market.

After all, the coming house price decline will not be equal nationwide. London, with its City bonuses and increasing number of foreign buyers tempted by a weak pound (and reports suggest they are no longer snapping up just the high end Belgravia properties, but going as low as £750,000) remains an island. In fact, Nationwide reckons that the ‘north-south divide’ in the market is at an all-time high – something that could be exacerbated by the reduction in public sector cuts.

But poor consumer confidence will be uniform across the country. And those people who hang onto their jobs can look forward to tax rises and minimal pay awards. This will make it harder to pay off mortgages, as will the interest rate hike, when it comes. While the Bank of England’s rate-setters say that ‘uncomfortably’ high inflation is not reason enough to increase rates yet – the threat of a stalling economic recovery still looms too large – how long will it be before they join colleague Andrew Sentance in voting for a rise?

Government stimuli, such as the stamp duty holiday on properties costing less than £250,000 announced in Alistair Darling's last Budget in March, appears to have had little impact.

‘Are house prices at the tipping point?’ asks Ed Stansfield at Capital Economics. ‘We expect house prices to fall back in the second half of this year as confidence fades. They will then continue falling in 2011 as the impact of the fiscal policy tightening kicks in.’

Uncertainty abounds, but it’s hard to disagree.

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11 comments so far. Why not have your say?

I hope so, and its not before time. House prices are still way over valued. In the past ten years a detached 3/4 bed house in my street has gone from £150 - £175k to up to £400k today (I couldn't afford one then and I can't now). I am fortunate in that I have gone from a semi-senior to a partner role in my firm - so my income has more than doubled in ten years. However, the ratio of my income to those property prices has remained about the same!!! Basically, I will never be able to afford to move up the ladder, and there must be lots of people in the same position. By the way, those £400k houses are not worth moving for (we wouldn't gain enough on our 3 bed terraced) so we are facing £500k properties - we can dream....

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Softening of prices, not a crash, 10 years is a long time for salaries to grow, a four bed around where I live is anything between £210k to £270K all depends on what you want and where. Personally I think they are not far off what people can afford to buy. What is the issue is borrowing the cash in the first place, that is the main reason for house price stagnating, banks being greedy wiyh our money!

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If your going to buy make an offer, a big offer below asking, cant help thinking some vendors are chancing their arm and are expecting a substantial below asking price. If youve funds now is a really good time to buy, dont wait for property to go down 20% it doesnt happen. And for many of us buying is cheaper than renting

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Mr. Tom is certainly right about the issue re cash. In 2004 the independent Barker Rept confirmed the massive under supply of housing in the UK, this was reaffirmed by Callcutt in 2007and Gordon Browns aspirations in 2008. Yet we continue to knock down old houses whilst new ones are not being built fast enough. Callcutt concluded we need 290,500 per annum to meet demand but last year built around 133,000 with estimates this year of 122,000. The ONS released data to say the population continues to rise by over 1,000 per day and that 180,000 new immigrants arrive each year and will continue to do so for 25 years (dont know how they work that out) In short, supply and demand will continue to push up prices by trend, people cannot buy due to the difference between available deposit and available lending. With prices rising faster overall than the ability to save for the increasing deposit, where does the future lie? Lending at 90% would be a start.

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I am very suprised prices have not fallen more

In the North East houses are still afordable two bed flats can be bought for 75K and you can buy 3 bed houses for 110k

the above prices are about 20% lower than the peak of the market avarage salaries for a couple are around 30K joint so a couple can still get on the houseing market

I for one would love to see futher drops it helps every one apart from the sellers

in the long term the british love houses so in the long term houses will always make a good investment

looking at todays stock markets its the only thing we can depend on

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A very good analysis by Chris Marshall. It is important to emphasise however the vast difference in buying power in different regions of the country and areas within these regions.

Numerical statistics do not reveal the fact that even professional people such as Richard N have been priced out of the market in the area where he works, and yet in other regions, recipients of benefits who do no work at all have been able to obtain mortgages for family sized properties. In my area three bedroom refurbished terraced houses with a garden could have been bought for £40,000 ten years ago. Their value rose to £85,000 in 2007 but has steadily declined due to greater numbers being offered for sale, to around £70,000 today. Even at these prices which would equate to less than some people are paying in rent, only a trickle of buyers are coming forward. An increasing number of those who are able to raise the finance are landlords buying as an investment.

This trend is set to continue as government funds dry up, and benefits are cut. My biggest worry is that areas of the north will follow the pattern set by Detroit.

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The house price/average earnings ratio ceased to be valid long ago.

Having said that, the property market is moribund. Osborne missed a trick with VAT. He should have abolished the zero VAT for new homes and the reduced rate for refurbishments. That would deter greedy developers from building over our green and pleasant land, or making a fast buck at the expense of the ordinary person, who has to pay full VAT.

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An an investor I would LOVE prices to drop further as there would be even more deals around. Suspect though that the North South divide will reassert itself as the North suffers from cuts in public spending and the South gradually recovers. Rising rents too are good - so the deals stack up better for rental.

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House prices will continue to fall, but only with the intentions of levelling out. Once we have sold foundations of property prices showing stability and growth, there will be fresh confidence and this is not far away from happening. See www.callaways.co.uk

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A few days ago, seller 1's buyer who had virtually offered the asking price lost his buyer in the chain, thus jeopardising seller 1's purchase.

Someone else then offered seller 1 97% of his asking price to be advised that the full asking price was required.

Knowing what seller 1 paid for the property (easy to establish)it's amazing that in this current economic climate, greed and stupidity prevail.

From the above posts, it would appear that seller 1 will rue the day.......I hope so.

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Michael Brooks

Aug 23, 2010 at 20:27

I had to take a huge drop on my newly renovated Surrey property, but since I paid £25K, I was still historically making a huge gain. It took me nearly two years to sell, but in the end it sold for its correct value, as its value was only what someone was prepared to pay. I have recently bought a house near the Suffolk coast, and I was fortunate that the property I settled on was a probate property where, to put it crudely, the vendor wanted his money ASAP. Looking on the various property portals, it is amazing to see how many vendors are in denial about the true value of their houses, many of which have been on the market for many months, some for well over a year.

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