Friday 28 August 2009

Nationwide UK House Price Index for August Hardly Surprising: More Rises = Bad News for Housing Market

The Nationwide building society, one of the UK's largest mortgage lenders has released its August data on UK house prices -- strange that they released it before the end of the month, usually its a few days after but there we go.

The Nationwide figures for August are largely unsurprising; UK house prices are up 1.6% on the month -- the fourth consecutive monthly increase -- up 3.3% on a tri-monthly basis, and now down just 2.7% on an annual basis.

What is surprising as you may have already seen Richard McKay point out on the Zungalow blog or his comments on Write About Property, is that the Nationwide report put the rising prices down to low interest rates.

As Richard said, yes low interest rates will almost certainly have been partially responsible for the minor increases we have seen in transaction levels this year. But said increased transactions would not have been enough to trigger the price increases of the last few months, were it not for the drastically low supply levels we are currently seeing in the UK housing market.

On a historical basis, as far back as 1993, if transaction volumes are this low, house prices are falling. The fact that they are rising is actually bad news for the housing market's future and here's why:

A: Vendors are still predominantly unrealistic about what their home will sell for. House prices rising is stopping this from being rectified, and the correction will not end until the gap between what the majority of vendors are willing to sell for, and what buyers are willing to pay closes. In short prices rising now, when vendors are still unrealistic is simply perpetuating the crash.

B: Homes still aren't affordable to the average first time buyer. The long-term average is house prices under 4 times the average salary. They are currently between 5 and 7 depending on who you listen to. Major crashes like this in house prices usually cause prices to go well below the long-term average, and it is unlikely that this crash will be any different. So again, house prices rising while homes are not affordable is perpetuating the crisis, and making another correction necessary.

Tuesday 25 August 2009

Mouseprice.com Gets the Grand Prize for Stating the Obvious on UK House Prices

I have just read an article and felt I must put pen to paper to award it with the grand prize for stating the obvious.

The article in first-rung now surrounded a report by mouseprice.com stating that UK house prices may yet be affected by unemployment.

Firstly it said that unemployment will be the economic indicator that takes longest to turn around. That is not the bone of contention, because though it is obvious to me that businesses have wound themselves into a ball, with their knees under their chin to protect themselves from the recession, and it will take them quite a while before they feel confident enough to come back out to normal, let along consider expanding to the point where new staff become necessary. This is not obvious to everyone.

The bone of contention is the fact that is said unemployment could yet affect house prices. The fact is that unemployment has and is already affecting house prices. Transactions are still at record lows, and unemployment is at least in part to blame for that. Does everyone not know that it is only the fact that supply is at all time lows (and of the UK properties for sale most being unrealistically priced) that has halted the freefall of house prices.

So of course unemployment could still have a further impact on house prices, and it almost certainly will be one of the factors driving prices down if supply increases.

Saturday 22 August 2009

75% of Homeowners think UK House Price Falls Over in 2009 - But Are They?

75% of homeowners do not think house prices will fall any further in 2009 according to a survey ran by Rightmove. Miles Shipside said that this optimism is down to "a general feeling" that the housing market has bottomed.


I think it is more down to the type of website that Rightmove is. Yes, Rightmove has a massive share of the UK property sales market, and most properties sold throughout the UK, will be advertised on Rightmove.


But we must not forget that Rightmove it is a property sales site, so the people who have taken the Rightmove survey are the people who have decided to sell their house, and therefore the people who have a certain degree of faith in the housing market and house prices. I think that is what has been reflected in the results of the survey.


Another factor I can't ignore is the fact that Rightmove does not allow private sellers to advertise their properties on the site, it is 100% estate agent. So you have to consider that any survey conducted by Rightmove may be influenced by estate agents who wish to create a positive market.

Tuesday 11 August 2009

UK Housing Market Stares into the Abyss

Mortgages for house purchases were 23% higher in June than in May, the Council for Mortgage Lenders has revealed. This comes after all the major indices have shown several monthly price increases this year, bringing the annual fall to 12.1% with around a 1% fall in prices so far this year.

Currently, the upward pressure on house prices is caused by a slight increase in activity -- as low interest rates, and positive economic data bring a bit of confidence back into the market -- combined with a drastic shortage of saleable (realistically priced) housing stock.

Because the mortgage market is still on its knees and unemployment rising, activity is unlikely to reach the levels we see during a balanced housing market, and so we are left vulnerable to supply increasing quicker than activity and sending prices back into freefall.

None the less the positive news is enough to make some people believe that house prices will grow over 2009, that is to say house prices will be higher in January 2009 than they were in January 2008, and some people (including the Centre for Economics and Business Research) believe this will be the bottom of the market.

This is a logical thesis, during a correction like this one the rate of annual decline accelerates by the month, before beginning to slow as activity increases. When annually prices start to grow again then this is usually the bottom of the market.
However, there is nothing normal about this correction, because it has been triggered by the almost complete collapse of the developed world's banking system.

Mark my words, there will be a second fall in UK house prices, how long prices grow for, and whether there is a growth overall in 2009 merely determines how severe the second correction will be.