Tuesday 23 February 2010

UK House prices trend to fall

I am moving at the end of this week, so this latest bit of news is not good for those of us hoping to get rich out of living in our houses (this comment is aimed at winding up Mark Wadsworth).

Effecitvly the rate of mortgage lending, always low at this time of year, has fallen to an eight and a half year low. Always remember with an expanding population and more houses being built every year this is quite a reduction in real terms activity.

So what does this point to falling prices? Well logically it suggests there are not too many people either wealthy enough or confident enough to want to move house. Whilst this holds up supply of houses (and oddly, boost listed housebuilders who benefit from providing the supply trickle) and provides some temprorary suport to prices; long-term it suggests the market is still too high. Last year's recovery trend is running out of steam.

The saving grace that will stop another 20% correction is the low interest rate environment combined with 3.5% CPI inflation. This means that saving is not for anyone, as I have blogged recently and so investing in housing, althought illiquid, has some appeal. That, plus a possible fall in Sterling, makes it hard to predict where house prices will end up in nominal terms this year, in real terms I expect a 10% drop.

Where is the recovery though from the recession? Business seems to be picking up to a sustained level, but as these figures show, there is no real growth, just bumping along the bottom.


Tuscan Tony said...

I take a more brutal view: there's at least 25% of houseprice downside to see yet.

Electro-Kevin said...

At least, Tuscan.

Who has the confidence, capital or the earnings to prop the market up ? I suggest that prices have remained so high because they reflect the transactions of a confident minority who are active in this market - the rest of us are hanging on in there living in some fantasy.

If those who wanted a less scarey mortgage put their houses on the market at once they'd find supply outstripping demand at current valuations.

CityUnslicker said...

Nominal versus real falls are hard though. The Uk market in Euro's is over 50% down and in 40% down in Dollars.

I agree re prices being to high. The best solution would be a 10 year sideways move - that would lead to a more realistic state of affairs. As we know though, markets don't work like that.

Sebastian Weetabix said...

Here's a question for you money men types (I'm just an ever so 'umble engineer, so I dunno nuffink me) - does the end of quantitative easing mean anything for house prices?

Anonymous said...

The market in South East England is being buoyed by foreign buyers. Properties are being actively marketed (to my knowledge) to Malaysian Chinese and African elites and I am sure the estate agents are active elsewhere.
Housing in the home counties is now part of the global market in investment assets and is decoupling from the rest of the UK.
At a recent society wedding in Abuja the happy couple received the keys to SIX London properties as wedding presents.
Should the legal or social environment change then prices could unwind very quickly here.

CityUnslicker said...

SW - well less money in the markets may mean less bank lending - on the other hand mortage lending is quite gouging at the moment as banks make 200-400 basis points where they used to make 50!

Semper- Interesting and probably a good point. I wonder if the collapse off the pound will put the foreigners off?

Mark Wadsworth said...

I hereby declare myself wound up. The point being, you've got to sell to rent at the top of the market - that's how you get rich just by living somewhere.

Sebastian Weetabix said...

I've been waiting for hours for MW to show up! And such a temperate reply. How disappointing.

CityUnslicker said...

Agree - I should have put a link in to his blog.

I am buying from rent now MW - timing not perfect but still reckon I did ok. My grwoing brood forced me to upsize in any event.

financial spread betting said...

They have a long way to fall in my opinion. One of the last bubbles to burst.