These are confusing times for the housing market and would-be buyers. Nationwide record the first year on year house price rise, but Hometrack show a fall. Looking at the economy you would think that house prices would have dropped much further than they already have. In fact there are many statistics out there about rising prices, more mortgage loans and more potential buyers. Believe the VIs and you should buy now while houses are relatively cheap. “Don’t touch!” say the doom-sayers, because house prices are set to plummet further.But why is it that, after the almost total collapse of the economy, one can’t go into one’s local estate agency with a shiny new off the press pound coin and buy that four-bed roomed house in the perfect location by the river? Why are UK house prices so ‘sticky’?
We seem to have reached an uneasy equilibrium between those that wish or need to sell and those that want and can afford to buy. If anything demand slightly outstrips supply. Those that can’t sell generally don’t need to so are happy to hang on. Demand outstrips supply to the extent that some of those that recently became ‘reluctant landlords’ have been able now to offload at the price they want.
What has kept average prices up has been few houses to buy across the country and a seemingly buoyant London market. London has been kept afloat by government action with the banks and a depressed currency that has attracted foreign buyers in. The rest of the country has at best remained stagnant. In fact FTB activity in Scotland seems to have ground to a halt.
Next year, with the lowering of the stamp duty threshold, VAT back at 17.5% and the prospect of an ‘emergency budget’ after the election should put some dampeners on the situation. Also, recent price rises are now leading to fewer people registering to buy with estate agents, but there is also the prospect of more sellers trying to take advantage of this firmer price window. A potential switch in the supply /demand equation.
And what of the end of the mortgage drought? Well, there may be more lenders and more competition, but they still haven’t loosened their lending criteria. This means that very few people actually qualify for the loans anyway. So, although ‘want’ demand might rise, the ‘can’ demand will not.
But just as house prices don’t always go up, they do not always go down. Barring any unforeseen cataclysmic event, the path seems more or less set. The government (of whichever colour), the banks and business will do their utmost to keep things going. This is and will be paid for using taxpayers’ money. This world-wide co-ordinated government action has been the unexpected factor that has continually spoiled the projections of the ultra-bears. Without this their predictions of a total collapse may well have come true.
The aim for governments will be to keep prices within a band for as long as it takes for the general economy to catch up and beyond. That will be many years in the doing and on the way house prices may drop another, say, 15% during this lengthy reset phase. Then, if the government have the regulation set up properly, we can expect modest gains generally in line with inflation. We will end up with fewer owner/occupiers and fewer property related ‘professionals’.
For those that sold to rent at the height of the market with the prospect of buying a palace in a few years time, this may not come as a welcome prospect. Especially as savings rates are probably not offsetting those rental costs. Illiquid assets (especially the house you live in) bought for the long term should be held for the long term.
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------ Other articles of interest ------
The West Country housing deficit
Are lenders about to start lending again?
The UK property market is not a dead parrot
Are house prices really invincible?
Tags: economics, Estate Agents, finance, house price news, housing market, Mortgages, News, Politics, residential housing market
And for those of us who have been unable to buy because prices have been so high for the last five or six years a co-ordinated action to keep us homeless. Has there been anything so vile, corrupt and anti-meritocratic ion my lidfetime?
Will the unintended consequence of all this government action be that well-trained and educated priofessionals such as myself give up on this country because I will always be prevented from having my own home? A fucking disgrace!
Roberto I think you speak for most Professional people…..The inflating of credit was mirrored in the housing market and so should the contraction.
It is not the government’s business to promote higher house prices and trick first time buyers in, the market will only crash again at a much greater depth in a couple of years. All so that they can try to reduce the landslide at the next election.
The irony of the situation is that they did NOTHING to prevent the bubble from getting out of hand and now they doing everything to stop the correction back to their equilibrium/fair value. Gordon Brown, Tony Blair – the whole government are currupt and dishonest people who have stolen tax payers money to pay for their mistakes.
Lucas the thing I worry about is how long will this QE go on for? and as Joseph Andrews said on this site the other day ….if the public sector doesn’t make cuts then it will seriously effect the bond market and lead to a problem with the value of government debt making borrowing a real problem to say the least.