House Prices On The Increase
The UK housing market has been through the deepest and most sudden slump in living memory. Every day brings a new survey, a new poll, new data, all seeming to indicate that house prices remain on the floor and indeed falling still. But are there any grounds for optimism? Does anyone spot the green shoots of recovery? Can we start to think once again that house prices might recover?
At the risk of depressing ourselves even further, let's start by looking at the supposed facts.
It is reckoned that house prices across the UK are around 20% down from their peak in the Summer of 2007 before Northern Rock almost collapsed and the banking industry went into free fall and near melt down. And to further compound the misery, data recently released from the Land Registry shows just how bad things might be. This data is widely considered to be the most authoritative of all the house price surveys as it registers and compares the prices of all properties sold in England and Wales and is able to compare the price paid now with the price paid when it was sold before. And this survey shows that the price of the average house in the first quarter of 2009 was 3.14% lower than the previous quarter and down 9% on 12 months ago.
In addition completed sales were half the level seen 12 months previously revealing the extent to which the market has become comatose in this period. And when you consider the high level of deposit now being asked for by banks from first time buyers as they move to ration their loans even more aggressively than before, it is no wonder that the market is looking very subdued.
And with the Council of Mortgage Lenders estimating there are about 2 million households unable to sell or move, either because they have negative or insufficient equity in their house, it is difficult to see any grounds for hope. And that is before we factor in the overall state of the economy and its depressing effect on consumer confidence and their willingness to commit to large scale purchases such as a house and a mortgage.
But maybe things might not be quite as bad as the picture painted above.
A key measure of activity, if not prices, is revealed by the amount of new mortgage loans agreed or approved by lenders. In the first few months of this year this jumped by 20% or so from the monthly levels of the past 6 months. So maybe things might be starting to pick up. Ok it is from a very low base and some commentators are sceptical suggesting that the recovery is miniscule compared to the drop but as the Chinese say 'a thousand mile journey has to start with a single step'. Mortgage approvals might be down 50% on the year previously but at least they appear to have stopped falling. And that's progress.
And for more evidence that things might be starting to improve, albeit tentatively, there is some first hand evidence from those closest to those looking to buy or move, the estate agent. A recent survey from the Royal Institute of Chartered Surveyors, found that on balance more surveyors expected house prices to fall than rise though they did expect prices to stabilise in the coming months. Crucially, however, this data also showed that enquiries by potential new buyers had increased for the sixth consecutive month with April the highest figure for almost a decade in new buyer enquiries.
The Verdict?
It is clear the evidence is becoming more mixed and this can be seen as a good sign for a recovery in house prices as the indicators start to turn in different directions. At least they are not all negative and some are turning positive even if house prices continue to fall.
The housing market does appear to be starting to return to life and this will in the long run feed into prices as the laws of supply and demand get back to normal. However, with unemployment continuing to increase with its consequent effect on confidence, with 25% deposits being demanded from first time buyers, the life blood of the market; and with lenders continuing to ration mortgages, it is clear that any turnaround in house prices is going to be a slow one.
But at some point, and hopefully not too far distant, house prices will start to recover. We all need somewhere to live and with the supply of houses being built in the UK failing to keep up with the growth in household formations, prices will recover as soon as the mortgage funding becomes available. I would bet my house on that.