What is it with people? Don’t they realise that house prices must be kept from falling at all costs? The only measure of an economy that ever really matters is the price of its houses. The higher they are the better the economy must be doing. It sends out a message to the world “come here!” it says “This is where growth is!” Keeping house prices high is therefore a government priority, if not the highest government priority.
High house prices keeps the banks well funded as well as providing huge opportunities for taxation.
And if anyone believes anything that I have written in this article so far then they are fools! But it seems to be the way the government and those with vested interests think about and pursue the housing market. Or how else have house prices defied gravity for so long?
Do people really think that the housing market has truly passed the bottom? To judge by the comments in the press you would think so. UK property ended unexpectedly up on the year is heard ringing all round the ‘papers.
LSL Property Services tell us what a good year Buy-to-Let landlords had last year with more to come in 2010. The average landlord made Â£12,700 on a rented property last year they tell us.
Barratt also tell us that they have seen a 4% rise in selling prices and a reduction in cancellations from about 28% to below 18%.
First time buyer affordability is also improving we are told.
But this is all short term. The truth is that fewer and fewer first time buyers will be able to raise the tens of thousands needed to produce a deposit. This will kick the ladder out from under the market. There are also not enough wealthy people or speculators outside of the London area to hold the ladder in place.
As national debt increases bond yields will have to rise, which means that mortgage rates will have to go up to provide the money to buy houses. Affordability will therefore decrease. Increased taxation will also exacerbate this situation.
With unemployment set to rise, the risk to lenders will increase. Up go mortgage rates again.
Interest rates have only got one way to go, up. Even a modest increase may well now trip many people over the edge.
What kept prices rising so much in the past was a combination of factors. First, the UK’s obsession with home ownership at any cost. Secondly, the government’s thinking that ever rising house prices keep the masses happy. Thirdly, the lenders’ thinking that ever rising house prices backed up by the people and the government made it a risk free environment to lend into. Fourthly, the government openly declaring the end to boom and bust so leading people into a false sense of security when borrowing to the hilt. Fifth, the inability of about a million so-called experts in the government, civil service, banks as well as all those regulatory officials in the Treasury, Bank of England and FSA to foresee the inevitable.
We still have a population itching to own their own home whatever the cost. But lenders won’t take the risks and soon the government won’t have the wherewithal to do so either.
House price declines will continue until, in real terms they are truly affordable. An average house should be in the region of three times a single average wage plus a ten percent deposit. Anything else above that is the formation of a bubble. This correction though may take a decade or so to complete.