So, what of the UK housing market and where it may be going.
I am no fortune teller but some predictions just seem totally outlandish to me.
Now, just to get it out of the way, some people did see the property bubble bursting many years before it happened and some fewer people foresaw how it was tied in with a general economic downturn.
But now that has happened, it is a fact and it is already written in the history books. But well done to those who foresaw it and had the courage to speak out.
Now though we need to look to the future and ask ourselves what is realistically going to happen.
Some would have you believe that a social and economic meltdown is coming, a sort of financial doomsday. Some say that it is all over and we should get out and get on the housing ladder come what may or risk losing out.
I don’t subscribe to either view, I believe the future of the housing market, and the general economy for that matter, lies somewhere in the middle.
One statistic of note is that between 1914 and 1999 owner-occupation of housing rose from just 10% to 68% (House if Commons Research Paper 111/99 dated 21 December 1999). And it is a fair assumption given the continued sale of council housing to tenants and the year on year increase in mortgage approvals up to 2007 that the increase in owner-occupation continued.
The reason only 10% of people owned their own houses in 1914 was not through choice. They could not afford the house. They had neither the deposit nor the income. But gradually, with the redistribution of wealth and banking ‘innovation‘, more people could afford to buy.
Over the years and decades owner-occupation went from being a dream to being an expectation, almost a right. It then got to a point where people became driven by both fear and greed. Fear that they would be looked down on as tenants, never owning their own house. And greed that property would somehow make them rich just by owning it.
But at some stage between the nineties and 2007 the housing market became underpinned by irresponsible lending (or borrowing, whichever way you look at it).
In 2007 however, when then credit taps were brutally turned off, this trend quickly reversed and there were 83,000 fewer owner occupiers by the end of the year.
We now have a position where fewer and fewer people will be able to afford a house. Banks will not lend like they used to, nor with their low returns to savers will they help you amass a deposit. The tax take will rise inexorably for the near future eating into our wages to pay back the huge national debt. The amount of disposable income will drop. The banks, under regulation, will not be able to lend like the early 2000s.
But, they will still lend to those with big deposits and/or good incomes. They will still give 90% LTV mortgages. So the bottom will not fall totally out of the market. Just look at recent statistics for both sales and rental properties.
We may well hit an equilibrium where there are far fewer owner-occupiers. People within a certain wage bracket who a few years ago could expect to own a house will now be renting, for life. Turning the clock back a few decades if you like.
This position will not be based on house prices, it will be based on house affordability. House prices fall only because no-one is buying them. In the UK people are desperate to own their own house. They do not look sensibly at the market, they generally get on the ladder when they can. As soon as more people can afford to buy, up the prices will go keeping low earners out.
The recent boom years raised our expectations but now reality is dawning. As the irresponsible lending unwinds the housing market will reach a point where it is underpinned by true wealth, not whatever you can squeeze out of a bank. The expectation of home ownership is receding for many into just a dream, something maybe it should always have been.
This may not be what people want to hear, but the mass home owner-occupier experiment has failed, and with it comes a resurgence of the landlord. Once again only the more well off or lucky will own their own home.