Newsletter 2
Main Story – Housing Market Update
“I am always ready to learn although I do not always like being taught.” (Winston Churchill)
Is the Bank of England really going to give us some ‘tough-love’ in the coming months? Their pre-occupation with idealistic notions such as ‘Moral Hazard’ appear to be dissuading them from cutting interest rates as drastically as in the US.
We hear from the chief Economists of HBOS & Nationwide and look at UK regional house price disparities via the FT House Price Index.
Consensus views in the Mortgage industry appear to be that the housing market is slowing but that a crash seems unlikely. As ever, there are lies, damn lies and statistics and there is a vested interest in the major banks remaining positive. However, in the following article we can hear a number of views, from both ends of the spectrum.
Martin Ellis, Head of Group Economics at HBOS, commented that, “The annual picture is still a positive one, house prices in January were 4.5% per cent higher than a year earlier and the average price of a home in the UK has increased by £7628 in the last year to £197,244, in his recent Economics report for FT Mortgage Adviser Magazine.
Whilst he generally retains a positive outlook for the UK property market, he does note, “Property transactions in England & Wales are forecast to decline by 15% in 2008.” However, “There has been a slowdown in the rate of decline of new buyer enquiries during the last 3 month, suggesting the downturn in (housing market) activity may be beginning to stabilise.” He predicts a flat 2008 for house prices and reminds us that all the recent doom and gloom should be looked at against house price rises of 179% in the last 10 years.
Positives remain. Firstly, “The UK economy recorded its 62nd successive quarter of house price growth in the final 3 months of 2007.” Secondly, there are record numbers of people in employment in the UK and, thirdly, the Bank of England does have room to cut interest rates to support the market and wider economy if necessary.
In February’s Monthly Market Update, Fionnuala Earley, Nationwide’s Group Economist, comments “Overall, it seems clear that we will not see recent rates of growth, in either the UK economy or housing market, for some time.” She also notes, “The trend in (house) prices is clearly weakening...” She also interprets the Monetary Policy Committee’s latest Inflation report; “…the outlook for the economy is much weaker than it was a year ago. Energy and food price inflation are threatening the MPC’s 2% CPI inflation target and seem likely to lead to another formal letter to the Chancellor later this year. The tone of the Governor’s remarks seemed to rule out the likelihood of aggressive rate cuts, at least for now, especially as the MPC is concerned about consumers’ inflation expectations.”
However, there are positives to be taken from the overall strength in the UK economy – even though it is now much weaker! “It is encouraging that we are entering a slower (phase of) economic growth rather than a recession.” Why?
"The performance of the economy is highly relevant for the fortunes of the housing market. A brief glance at the relationship over the last twenty or so years makes this abundantly clear. So while there are several factors which are slowing housing market demand, from poor affordability to weakening house price growth expectations to tighter credit conditions, the fact that an economic recession in the UK seems unlikely provides some support for the overall health of the housing market.” |
|
James Carter, Principal at Independent James
The FT Index in February 2008 shows that Annual House Price Inflation is still at the relatively high level of 6.1%, down from 6.8% in January’s report. However, when London is removed from these figures, the increase is reduced to 4.7%. This is because London showed an annual growth rate of 12.7%.
We can also see that the growth of house prices in London is 6 times that of the North of England, which has been the worst performing region. However, even within London there are clear disparities with the Borough of Kensington and Chelsea showing average annual growth over the last 3 months of 27.3% and Bexley just 6.6%.
I am slightly concerned by the uncertainty that exists in the housing market and economy at present. Nobody appears to be willing or able to pinpoint what stage of the economic cycle we are at and this brings uncertainty to consumers and affects confidence. We all know that confidence is key to the housing market and whilst everybody appears to be taking a consensus middle ground view at the moment, I am not so certain and believe we should be prepared for a ‘less than best’ scenario.
We have already seen falls in property prices in provincial city centres due to oversupply – particularly with new build apartments. One of the main arguments being used to underpin prices is greater demand than supply and I do still believe this is true in certain areas. As always, you should be certain of your investment property purchases and need to take a long-term view of your situation.
Never is advice more valuable. At ij, we are perfectly placed, as independent advisers to assist you with your Mortgage arrangements. Flexibility can be key in uncertain times, so do not hesitate to Contact Us with any queries relating to this or any other matter.