Chill headwinds blast through the housing market

Cuts, rising unemployment and falling confidence mean the market is still on a knife-edge. Julian Knight reports

House prices are either on the edge of a precipice or merely floating gently downwards, depending on which commentator you believe. But next to no one is predicting that the next move in house prices is up.

"The headwinds are negative at present," says Martin Gahbauer, Nationwide's chief economist. "We still have low numbers of sales. As for mortgages, although they are more available than they were a year or so ago, they are nowhere near as numerous as before the credit crunch. What's more, since the summer we have had an oversupply of property compared to the number of buyers, and that generally means a softening in price.".

These chill headwinds will extend to the wider economy in 2011. "There are the much-talked-about public sector spending cuts, which will affect the economy, particularly in the North, Wales and Scotland. And then, of late, we are seeing an uptick in unemployment again," says Martin Ellis, a housing economist at the Halifax.

"Although this may only be temporary, housing market watchers have to be aware that job prospects have a major impact on the market and prices. It hits confidence," he says.

There is also the fallout of the eurozone debt crisis to factor in, which will hit the UK because the most of its trade is with EU partners.

However, Mr Ellis adds that he believes 2011 will be a year of two distinct parts for the housing market: "The price falls we have seen over the past few months, and which may well continue into 2011, have been partly caused by a glut of properties coming on to the market in the summer. People who had been holding off marketing their homes decided that the summer was the time – a lot of formerly pent-up stock became available. The reverse could happen in 2011, with sellers once again holding back and prices then should reflect this new undersupply."

Interest rates are set to remain low in 2011 and are likely to stay that way in 2012. "At the earliest, a rise will occur in late 2011, perhaps even 2012," Mr Gahbauer says. "This means that mortgage repayments are affordable, which is reflected in record low arrears and repossessions; that, in turn, means there is little distressed stock to further deflate prices."

But, as ever in the UK housing market, prices don't rise and fall in a uniform pattern across the country: there are substantial regional differences. The old north-south property market divide is alive and kicking it seems.

"I can actually see property prices in the M25 increasing over the next year, but falling quite substantially – perhaps by 10 per cent – in other parts," says Henry Pryor, an independent housing market analyst. "The recovery is stronger in London and some select parts of the South, and there is a shortage of space. Whereas in many parts of the North there is an awful lot of new-build properties, with few people to buy them. Also, prices rose to far too fast for the economies in those areas," he adds.

The return of buy-to-let investors, however, could place a floor under the property market. Rents – and therefore rental yields – are on the rise and there is evidence of "gazumping" in major rental markets.

"Buy-to-let is interesting at the moment. If you think about it, if you get little from cash savings or share dividends, then suddenly rental yields look pretty appealing," Mr Ellis says.

But any recovery in 2011-12 may come too late for many estate agents. "There are lots agents that just managed to limp through the last downturn, but who really don't have the money to survive the 12 or 24 months of this one. I can see lots going to the wall," Mr Pryor said.

Cash-rich buyers are in a position to benefit from the slide in prices. "Basically, you've got to be prepared to take advantage of the three Ds this year – divorce, death and debt – but make doubly sure you buy in a good area and a sound property," Mr Pryor added.

However, some commentators are suggesting that we are just starting out on a second dip in the housing market, the first of which started three years ago with the run on Northern Rock.

"Currently, house prices are falling by the equivalent of 10 per cent a year. Rightmove says asking prices have slipped another 6 per cent, and there is little mortgage lending going on because many of the banks are insolvent. This is part two of the housing market crash," said Jonathan Davis, an economist and managing director of Jonathan Davis Wealth Management. "The idea that somehow a few foreign buyers in prime central London will underpin the whole UK housing market is nonsense. During the first leg of the crash, for instance, prices in Kensington and Chelsea fell by the same as, if not more than, elsewhere. Overall, unemployment is on the rise, which should lead to more repossessions. And then we have inflation to factor in, which, long term, should eventually lead to higher interest rates and more homeowners in difficulty," Mr Davis said.

So it seems that the UK housing market is still sitting precariously on a knife-edge, just as it has since the queues formed outside Northern Rock in 2007 and the phrase credit crunch came into being.

What the experts say about 2011

Nationwide

House prices to fall in the first half of the year but to recover in the latter half

Halifax

Little change in prices or the current transaction levels, the market is going through the "doldrums"

Rightmove

Prices to fall 5 per cent with a widening divide between north and south

Henry Pryor

Ten per cent fall on average across the UK but with prices within M25 staying stable

Jonathan Davis

Sharp falls across all parts of the UK

Carter Jonas

Continued weakness with bright spots in central London and southern commuter towns

Chesterton Humberts

Loose monetary policy will sustain the market with some areas seeing renewed price growth

Arts and Entertainment
Gregg Wallace in Summer's Supermarket Secrets
tv All of this year's 15 contestants have now been named
Sport
The giant banner displayed by Legia Warsaw supporters last night
football Polish side was ejected from Champions League
Arts and Entertainment
Could we see Iain back in the Bake Off tent next week?
tv Contestant teased Newsnight viewers on potential reappearance
News
i100(and it's got nothing to do with the Great British Bake Off)
PROMOTED VIDEO
Voices
The Ukip leader has consistently refused to be drawn on where he would mount an attempt to secure a parliamentary seat
voicesNigel Farage: Those who predicted we would lose momentum heading into the 2015 election are going to have to think again
Arts and Entertainment
Cara Delevingne made her acting debut in Anna Karenina in 2012
film Cara Delevingne 'in talks' to star in Zoolander sequel
News
i100
Sport
Mario Balotelli pictured in his Liverpool shirt for the first time
football
Life and Style
tech
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SAS Business Analyst - Credit Risk - Retail Banking

    £450 - £500 per day: Orgtel: SAS Business Analyst, London, Banking, Credit Ris...

    Project Manager - Pensions

    £32000 - £38000 Per Annum Bonus, Life Insurance + Other Benefits: Clearwater P...

    KYC Analyst, Birmingham - £200-£250 p/d

    £200 - £250 per day + competitive: Orgtel: KYC Analyst, Key Banking Client, Bi...

    Test Manager - Banking - Yorkshire - £450 per day

    £400 - £500 per day: Orgtel: Test Manager - Banking - West Yorkshire - £400-£5...

    Day In a Page

    Ukraine crisis: The phoney war is over as Russian troops and armour pour across the border

    The phoney war is over

    Russian troops and armour pour into Ukraine
    Potatoes could be off the menu as crop pests threaten UK

    Potatoes could be off the menu as crop pests threaten UK

    The world’s entire food system is under attack - and Britain is most at risk, according to a new study
    Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

    Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

    Seoul's plastic surgery industry is booming thanks to the popularity of the K-Pop look
    From Mozart to Orson Welles: Creative geniuses who peaked too soon

    Creative geniuses who peaked too soon

    After the death of Sandy Wilson, 90, who wrote his only hit musical in his twenties, John Walsh wonders what it's like to peak too soon and go on to live a life more ordinary
    Caught in the crossfire of a cyber Cold War

    Caught in the crossfire of a cyber Cold War

    Fears are mounting that Vladimir Putin has instructed hackers to target banks like JP Morgan
    Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years

    Salomé: A head for seduction

    Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years. Now audiences can meet the Biblical femme fatale in two new stage and screen projects
    From Bram Stoker to Stanley Kubrick, the British Library's latest exhibition celebrates all things Gothic

    British Library celebrates all things Gothic

    Forthcoming exhibition Terror and Wonder: The Gothic Imagination will be the UK's largest ever celebration of Gothic literature
    The Hard Rock Café's owners are embroiled in a bitter legal dispute - but is the restaurant chain worth fighting for?

    Is the Hard Rock Café worth fighting for?

    The restaurant chain's owners are currently embroiled in a bitter legal dispute
    Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival

    In search of Caribbean soul food

    Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival
    11 best face powders

    11 best face powders

    Sweep away shiny skin with our pick of the best pressed and loose powder bases
    England vs Norway: Roy Hodgson's hands tied by exploding top flight

    Roy Hodgson's hands tied by exploding top flight

    Lack of Englishmen at leading Premier League clubs leaves manager hamstrung
    Angel Di Maria and Cristiano Ronaldo: A tale of two Manchester United No 7s

    Di Maria and Ronaldo: A tale of two Manchester United No 7s

    They both inherited the iconic shirt at Old Trafford, but the £59.7m new boy is joining a club in a very different state
    Israel-Gaza conflict: No victory for Israel despite weeks of death and devastation

    Robert Fisk: No victory for Israel despite weeks of devastation

    Palestinians have won: they are still in Gaza, and Hamas is still there
    Mary Beard writes character reference for Twitter troll who called her a 'slut'

    Unlikely friends: Mary Beard and the troll who called her a ‘filthy old slut’

    The Cambridge University classicist even wrote the student a character reference
    America’s new apartheid: Prosperous white districts are choosing to break away from black cities and go it alone

    America’s new apartheid

    Prosperous white districts are choosing to break away from black cities and go it alone