According to the Halifax index, house prices have fallen by 1.2 percent in the last 3 months.
This drop is likely to have been caused by the inevitable seasonal effects on the market which see the amount of property coming to the market beginning to tail off after the optimistic period of sales in June.
The house market is very susceptible to the confidence of vendors and purchasers in an uncertain economic time , and while economic indicators on growth were better than expected in October, it would be a mistake to interpret this as the start of the levelling in the market for residential property.
The market has in the past 6 months been sustained as much by scarcity as anything else. This has ensured that demand and prices have been stable in a restricted market supply of houses .
However, following the latest round of public sector cuts as well as likely unemployment in the public sector and predictions of further unemployment in the private sector, purchaser demand has weakened, and this is clearly seen by the daily recorded fall in property enquiries on agents’ websites .
A simple chart showing the UK house market in relation to the US market suggests that the recent further collapse in the US property market (which is much more responsive to the market trends as it is a freer economic model with a more readily responsive market in terms of supply and demand , whereas the UK market continues to be distorted by a very restrictive supply of housing ) is going to see the UK housing market follow suit.
While care needs to be taken to avoid extrapolating national trends from regional results and the various types of houses, in the worst areas the levels are back to the 2004 level.
House prices are still overpriced by the historical measures of multipliers of salaries, and with the continued restriction in the number of mortgage approvals by a very nervous lending market , an unwillingness of banks to lend evidenced by a shortage of mortgage finance and the increase in deposit levels for first time buyers, the property market will continue to fall. Over the next 12 months, economic stability and growth should return, as the lending criteria and the appetite to extend beyond traditional salary multipliers are going to go the way of self certification. However, these will be historical structures unacceptable to the new funding regimes, and borrowers in a more uncertain employment market will continue to struggle.
In many ways the true level of the housing market will return, as the fabricated and packaged finance structures are removed and the house market will trade in greater volumes in realistic prices that can be afforded by the purchasers in a world chastened by public and private debt.
By Adam Farnsworth
01536 532373
