When will the housing market hit bottom?

Some in the business claim the worst is over, but there is still cause for concern, says Julian Knight

A lot of noise is emanating from the housing market, with insiders detecting the first of those much-vaunted "green shoots of recovery".

The latest Royal Institution of Chartered Surveyors survey, traditionally a good weather vane for what is happening in the property market, suggests that the number of potential buyers finding their way into estate agents' offices is up. Likewise, the Council of Mortgage Lenders says that mortgage approvals were up some 4 per cent from January to February. More anecdotally, estate agents working in the London market – generally price increases tend to start in the capital and then wash throughout the country – have been reporting growing numbers of enquiries from the new year on? Is the worst over, therefore, and when the history of this housing crash is written, will its end date be said to be 2009?

The answer for many not involved in the buying and selling of property or the flogging of mortgages is no, not by a long chalk. "The evidence that has been used to support the idea that we are about to see a substantial lift in the market is flimsy to say the least," said Henry Pryor, an independent housing market analyst (www.housingexpert.net). "OK, mortgages may be up a tad but big deal. If you compare year on year, mortgages are down 48 per cent. Transactions may be up a bit but it's from a very low level, and we don't know what happened over Easter yet, which is the housing market equivalent of the January high street sales. If the figures are bad then it's back to square one."

In fact, nearly everywhere you look the housing market figures aren't just bad – they are cataclysmic. Until last month, Nationwide had recorded 15 consecutive months of house price falls; compare that with the early 1990s crash when the biggest string of losses was eight months.

"Official Land Registry figures for February 2007 recorded over 86,000 sales in England and Wales. February 2008 saw 61,500. So far, just 8,900 sales were recorded in February this year," says Mr Pryor. "While this figure is bound to rise before being formally confirmed in May, sales may not exceed 22,000. For those like estate agents and mortgage brokers who depend upon turnover, the market is unbelievably bad."

At the Nationwide, which recorded a surprise rise in prices in March – which was contradicted the following day by a Halifax survey – they are not presuming there is a spring renaissance in the housing market.

"I would not use the term green shoots for what is going on at the moment," says Martin Gahbauer, senior economist at the lender. "There is evidence that the market bottomed out sometime late last year, and what we are seeing now is a seasonal lift in activity. However, compare activity to the long-run average – the normal situation if you like – and we are a long way short."

Mr Gahbauer can see trouble ahead, as unemployment rises throughout 2009. "Until now, the falls have been a result of the tightening of mortgage lending: people have not been able to get sufficient size mortgages to buy and this has led to lower transactions and prices. Later this year, we will see rising unemployment creating a tough environment for house sales and this may further depress prices."

However, Mr Gahbauer adds that the relentless downward trend in prices may now have halted. "Over the year, I imagine we will have a lot of mixed, confusing signals emerge, with some months' prices up and others down. I don't think, though, we will see definitive signs of a recovery until the second half of 2010."

Some are more optimistic. The highly respected Lombard Street Research said last week that house prices were now in line with historical norms. In other words, the froth had been blown off the market and property was once more affordable to many. Ray Boulger, technical manager at mortgage broker Charcol, thinks Lombard Street has a point. "If you look at a pure analysis of the percentage of people's monthly income that is being taken up by mortgage repayments, then some equilibrium has been restored. Low interest rates and falling prices mean that property is far more affordable than it was. The worst may indeed be over, and remember there is a lot of pent-up demand out there for property."

But Mr Boulger throws in several caveats. "It's not so much unemployment per se as the spectre of redundancy which will stop many people buying. Also, lending criteria are still tight. It may be possible to get four-times salary for a mortgage but people still need substantial deposits. Even HSBC's announcement last week that it would put £1bn into offering 90 per cent mortgages for first-time buyers is just a drop in the ocean."

For these reasons, Mr Boulger doesn't think recovery in prices will start until the third quarter of 2010.

And no recovery will happen unless first-time buyers are involved. "Rising numbers of first-time buyers is the key signal for me of any recovery," Mr Gahbauer said.

Jonathan Davis, a certified financial planner and commentator on the housing market, who has consistently called the size of falls in the housing market correctly since 2007, says first-time buyer numbers are at an extraordinarily low ebb. "Even just a year ago, first-time buyers were on average having to fund a deposit of 11 per cent. Now it's 25 per cent. With savings rates so low and wage cuts, how are large enough numbers of people to get the market moving going to be able to afford this? The answer is they are not."

As for what Mr Boulger calls a "slight loosening" of lending criteria in the past couple of months, Mr Davis wonders if this will last. "Don't forget, the full picture hasn't emerged yet on bad debts among the banks. We have the commercial property sector in a mess and high levels of credit card debt which is not going to get repaid. This may force lenders to retrench further, choking off new home loans. Then we are going to see another million unemployed. Personally, I can't see what people would recognise as a recovery in the housing market before 2011 or 2012 at the earliest."

Longer term, when eventually the market does pick itself up, it may well be very different from what Britain became used to in heady days until 2007. It will be a much more sombre affair, says Matthew Bullock, the chief executive of the Norwich & Peterborough Building Society. "The pain of this housing crash will seep into the folk memory; people will equate being highly borrowed as having the potential to create real personal difficulties. On the supply side, lenders will want more margin for the risks they are taking so I don't expect any return to cheap mortgages and low deposits.

"This will take a decade to work through at least. Look at the market after the early 1990s crash: it took nearly 10 years to get its legs again. I expect something similar this time round."

Arts and Entertainment
Sheeran arrives at the 56th annual Grammy Awards earlier this year
musicYes, that would be Ed Sheeran, according to the BBC
Sport
Rio Ferdinand, Alan Shearer, Alan Hansen and Gary Lineker during Hansen's final broadcast
Sport
News
newsBear sweltering in zoo that reaches temperatures of 40 degrees
Arts and Entertainment
Brendan O'Carroll has brought out his female alter-ego Agnes Brown for Mrs Brown's Boys D'Movie
filmComedy holds its place at top of the UK box office
PROMOTED VIDEO
News
Ian Thorpe has thanked his supporters after the athlete said in an interview that he is gay
people
Arts and Entertainment
Professor Kathy Willis will showcase plants from the Royal Botanic Gardens at Kew
radioPlants: From Roots to Riches has been two years in the making
Arts and Entertainment
TV The follow-up documentary that has got locals worried
Arts and Entertainment
Eminem's daughter Hailie has graduated from high school
music
Arts and Entertainment
Original Netflix series such as Orange Is The New Black are to benefit from a 'substantial' increase in investment
TVHoax announcement had caused outrage
Life and Style
Swimsuit, £245, by Agent Provocateur
fashion

Diving in at the deep end is no excuse for shirking the style stakes

News
One Direction star Harry Styles who says he has no plans to follow his pal Cara Delevingne down the catwalk.
peopleManagement confirms rumours singer is going it alone are false
Arts and Entertainment
Curtain calls: Madani Younis
theatreMadani Younis wants the neighbourhood to follow his work as closely as his audiences do
Arts and Entertainment
'Deep Breath' is Peter Capaldi's first full-length adventure as the twelfth Doctor
TVFirst episode of new series has ended up on the internet
Life and Style
Douglas McMaster says the food industry is ‘traumatised’
food + drinkSilo in Brighton will have just six staple dishes on the menu every day, including one meat option, one fish, one vegan, and one 'wild card'
Sport
Mario Balotelli, Divock Origi, Loic Remy, Wilfried Bony and Karim Benzema
transfersBony, Benzema and the other transfer targets
Life and Style
Once a month, waistline watcher Suran steps into a 3D body scanner that maps his body shape and records measurements with pinpoint accuracy
techFrom heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor
Finacial products from our partners
Property search
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

    Information Security Manager (ISO 27001, Accreditation, ITIL)

    £70000 per annum: Harrington Starr: Information Security Manager (ISO 27001, A...

    Biztalk - outstanding opportunity

    £75000 - £85000 per annum + ex bens: Deerfoot IT Resources Limited: Biztalk Te...

    Trade Desk Specialist (FIX, Linux, Windows, Network Security)

    £60000 per annum: Harrington Starr: Trade Desk Specialist (FIX, Linux, Windows...

    Service Desk Analyst (Windows, Active Directory, ITIL, Reuter)

    £35000 per annum: Harrington Starr: Service Desk Analyst (Windows, Active Dire...

    Day In a Page

    Iraq crisis: How Saudi Arabia helped Isis take over the north of the country

    How Saudi Arabia helped Isis take over northern Iraq

    A speech by an ex-MI6 boss hints at a plan going back over a decade. In some areas, being Shia is akin to being a Jew in Nazi Germany, says Patrick Cockburn
    The evolution of Andy Serkis: First Gollum, then King Kong - now the actor is swinging through the trees in Dawn of the Planet of the Apes

    The evolution of Andy Serkis

    First Gollum, then King Kong - now the actor is swinging through the trees in Dawn of the Planet of the Apes
    You thought 'Benefits Street' was controversial: Follow-up documentary 'Immigrant Street' has got locals worried

    You thought 'Benefits Street' was controversial...

    Follow-up documentary 'Immigrant Street' has got locals worried
    Refugee children from Central America let down by Washington's high ideals

    Refugee children let down by Washington's high ideals

    Democrats and Republicans refuse to set aside their differences to cope with the influx of desperate Central Americas, says Rupert Cornwell
    Children's books are too white, says Laureate

    Children's books are too white, says Laureate

    Malorie Blackman appeals for a better ethnic mix of authors and characters and the illustrator Quentin Blake comes to the rescue
    Blackest is the new black: Scientists have developed a material so dark that you can't see it...

    Blackest is the new black

    Scientists have developed a material so dark that you can't see it...
    Matthew Barzun: America's diplomatic dude

    Matthew Barzun: America's diplomatic dude

    The US Ambassador to London holds 'jeans and beer' gigs at his official residence – it's all part of the job, he tells Chris Green
    Meet the Quantified Selfers: From heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor

    Meet the 'Quantified Selfers'

    From heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor
    Madani Younis: Five-star reviews are just the opening act for British theatre's first non-white artistic director

    Five-star reviews are just the opening act for British theatre's first non-white artistic director

    Madani Younis wants the neighbourhood to follow his work as closely as his audiences do
    Mrs Brown and her boys: are they having a laugh?

    Mrs Brown and her boys: are they having a laugh?

    When it comes to national stereotyping, the Irish – among others – know it can pay to play up to outsiders' expectations, says DJ Taylor
    Gavin Maxwell's bitter legacy: Was the otter man the wildlife champion he appeared to be?

    Otter man Gavin Maxwell's bitter legacy

    The aristocrat's eccentric devotion to his pets inspired a generation. But our greatest living nature writer believes his legacy has been quite toxic
    Joanna Rowsell: The World Champion cyclist on breaking her collarbone, shattering her teeth - and dealing with alopecia

    Joanna Rowsell: 'I wear my wig to look normal'

    The World Champion cyclist on breaking her collarbone, shattering her teeth - and dealing with alopecia
    Bill Granger recipes: Our chef gives raw ingredients a lift with his quick marinades

    Bill Granger's quick and delicious marinades

    Our chef's marinades are great for weekend barbecuing, but are also a delicious way of injecting flavour into, and breaking the monotony of, weekday meals
    Germany vs Argentina World Cup 2014 preview: Why Brazilians don't love their neighbours Argentina any more

    Anyone but Argentina – why Brazilians don’t love their neighbours any more

    The hosts will be supporting Germany in today's World Cup final, reports Alex Bellos
    The Open 2014: Time again to ask that major question - can Lee Westwood win at last?

    The Open 2014

    Time again to ask that major question - can Lee Westwood win at last?