Recent newspaper headlines are full of articles heralding the end of the residential property slump and to many this will come as welcome news.
Families are stuck in negative equity who bought at the top of the market, builders who have seen their profits slashed would like to see new build sales return to 2007 levels, parents have remortgaged their houses for deposits for their children to get on the property ladder/snake and estate agents just want to earn a living again.
For those in the aforementioned positions a warm welcome awaits any article in the mainstream media that brings a glimmer of hope that the crash is over.
So how much credence should we give such articles that propose an end to the crash?
Well there is truth that we have seen a long lasting rally in the housing market but these must be read in relation to the time in which they have occurred.
Firstly the rally started in the spring which is of no surprise really seeing as the spring has always been the most resilient of months in any property crash and is of cause the traditional selling season for residential property.
Secondly cash rich savers have seen their deposits waver in the recession due to the low interest rates and having to dip into the pot which may have brought in some kind of income so the property market has become attractive to them with hopes of some return through rental.
And as I have said on a few occasions cash rich doesn't mean just "Rich" enough to buy outright… but this is a time when the required mortgage deposits are so high that you must be on a wage that is above the average wage to save a deposit for a house.In other words if you can afford a cash deposit then your cash rich.
And with artificially lower interest rates those who have had enough of renting and are cash rich will be foolishly "Taking advantage" of the low interest rates on trackers…
So what about the average man on the street on average wage and first time buyers?
Well they are resigned to the subs bench…..
If they have not managed to save a deposit worth 40%+ of the property value then they probably won't qualify for the mortgage or the mortgage repayments with a lower deposit will cripple them making it cheaper to actually rent….and with rents falling that is always a good idea.
The reported rises in mortgage approvals can only mean that the last of the cash rich are being suckered into mortgages.
With rising unemployment producing higher tax bills to pay for the benefits of the unemployed and lower tax returns from said unemployed, those who are working will have to face real financial pressure to service their mortgage and WHEN interest rates go back up we will see the real property crash.
A combination of measures by the government and the Bank Of England to sustain the property market can only go so far.
As they say "The game is in two halves"….the first half of the crash has seen any catastrophic developments due to the lower interest rates and the banks being bailed out and the only major effect has been the constriction of credit.
The second half of the crash will be when the interest rates rise and the banks tighten the criteria further due to the higher risk for lending in an economy now caught in a deflationary spiral. The only hope is high inflation….but if that is not met by relative wage inflation the bubble will return to deflate at a later date.
So what does this have to do with house prices?
No Money, No House………..