Housing Market Indicators: Are house prices falling again?
Housing Market Indicators: Are house prices falling again
?
House prices are never far from the headlines and recent months have seen a lot of bad news. So are we witnessing another prolonged fall in house prices? Well prices have definitely been falling over recent months but there is a lot of debate as to whether we'll see a true double dip.
However it would be difficult to argue that the housing market is healthy!
Sales volumes remain very low
Mortgages are difficult or impossible to secure
Prices are very unstable
Large scale redundancies
Confidence is low
House building is at a record low
All this means that the short to mid term housing market is likely to remain a difficult place for all home buyers and sellers.
Quick Move Now's summary of the housing market looks to key institutions and market indicators within the finance and house sectors to gain an insight into where the market is and where it is heading.
House Price Index Halifax -3.6% (monthly change) -18.86% (fall since peak)
House Price Index Nationwide -0.7% (monthly change) -11.64% (fall since peak)
CML-Mortgage Lending 12bn -7% (annual change)
Interest Rates 0.5%
Quick Move FTI 29%
Inflation 3.1%
Economic Growth +1.2%
Unemployment 2.45 million
*Information compiled from various sources. Quick Move Now takes no responsibility for its accuracy. Last updated 03/11/2010
House Prices
All the major house price indexes have shown falling house prices over recent months. Halifax in particular recorded a fall of 3.6% in September alone. Although monthly stats need to be taken with a pinch of salt it is now undeniable that there is a downward trend in house price's.
Sale Volumes
One of the reasons that houses prices seem so volatile is that the number of sales is very low. The most recent transaction figures from Land Registry show that in July there were 64,411 transactions compared to 115,920 in the same month of 2007. Land Registry stats always lag a few months behind and looking at the other indicators the sales volumes after July are likely to be much worse.
Mortgages
Total mortgage lending is falling and is at a fraction of previous levels. Both the Council of Mortgage Lenders and the BBA figures have shown that monthly mortgage volumes have fallen drastically. Net mortgage lending in September was just 1.6bn, which is the lowest figure since October 2000. Considering what the economy and banking sector has been through in the last 2 years it is shocking that a low should be reached now.
The truth is that banks are more than happy not to lend as they try and repair their balance sheets. Lenders are therefore implementing rigorous lending criteria and underwriting. Some of these measures are relevant attempts to avoid fraudulent/bad loans but many are ill thought out and are impacting every potential home buyer requiring lending.
The result is that mortgage lending has become a slower and much more difficult process for everyone. And for thousands of potential home buyers mortgage finance is now impossible or terribly expensive.
Not only does the lack of lending mean there are fewer housing transactions taking place it also means that the level of aborted sales is increasing. To read more visit our fall through index.
Regional Differences
Regional economic conditions and local demand and supply influences mean that the housing market will differ across the country. Every town, village and area will be different but to demonstrate we have provided a couple of generic examples:
London:
London area is still likely to see short term price falls but is better placed to recover.
Supply is extremely constricted-not enough houses increases competition and therefore prices.
Better job prospects-more people in a financial position to buy.
More buyers have cash or high deposit and so market isn't wholly dependent on mortgage finance.
However house prices are higher so deposits will need to be larger. This will limit demand so the number of transactions is likely to remain low.
North East:
Market has recovered very little since the last drop and so re-newed falls could have dramatic impact.
Greater supply of property and low demand so less price pressure.
Dependence of public sector jobs means that redundancies will lead to further drops in demand and increase supply as those made redundant try and sell.
Although house prices are lower all these factors will mean that people are still not able to fund purchases. So prices and sale volumes are likely to fall.
Government
The government has recently announced massive spending cuts. The economic conditions and unemployment caused by these decisions could well have a dramatic effect on the housing market. However the government has tools to influence the housing market more directly.
For example the housing market is fed by mortgage finance, which as we know is currently very constrained. If the market is to function properly mortgage lending needs to be freely available. At the moment banks are more interested in lining their own pockets and repairing balance sheets than lending. Obviously the government has powers to influence the lenders especially the huge banks which are state owned.
There has been little noise from the government on house building and planning. Building targets have been scrapped and it seems that decisions on local planning applications will be made by locally. Surely NIMBY'ism will go crazy. With all this uncertainty it is likely we'll continue to see very low levels of building and therefore supply will remain significantly restricted.
If Inflation is not kept under control the BOE may have to increase interest rates. Resulting higher mortgage rates would make house purchases even more unaffordable. It would also put pressure on homeowners who are just about meeting their current mortgage repayments, any increase in rates could well push thousands over the edge and into repossession.
Unemployment
After the recently announced huge public sector cutbacks we are likely to see at least 500,000 direct job losses. Many other jobs will also be at risk at the many private businesses which rely on the public sector e.g. suppliers, construction etc.
The government is betting on the private sector picking up the slack but the problem is that the job creation is unlikely to be in the same place as the redundancies. This will mean the impact will differ across the country.
For example an area like Middlesbrough where 43% of people are employed by the public sector could see huge job losses but not a corresponding increase in private sector jobs . This would reduce demand for property even more while at the same time those made redundant will need to sell so swelling supply, this would almost definitely lead to downward pressure on house prices.
Many areas will experience a double dip in house prices
We will have to wait to see whether the UK as a whole see's a double dip in house prices!
However it looks like many local areas are already experiencing a double dip. Many areas did not experience the well publicised price increases earlier this year and instead saw falling or stagnant prices. Even if the current dip in prices is only short-lived it is likely we'll see a double dip as no real recovery was ever witnessed.
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