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."

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Customer Service Advisor

    £15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

    Recruitment Genius: Compliance Manager

    £40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

    SThree: Talent Acquisition Consultant

    £22500 - £27000 per annum + OTE £45K: SThree: Since our inception in 1986, STh...

    Day In a Page

    John Palmer: 'Goldfinger' of British crime was murdered, say police

    Murder of the Brink’s-MAT mastermind

    'Goldfinger' of British crime's life ended in a blaze of bullets, say police
    Forget little green men - aliens will look like humans, says Cambridge University evolution expert

    Forget little green men

    Leading evolutionary biologist says aliens will look like humans
    The Real Stories of Migrant Britain: An Algerian scientist adjusts to life working in a kebab shop

    The Real Stories of Migrant Britain

    An Algerian scientist struggles to adjust to her new life working in a Scottish kebab shop
    Bodyworlds museum: Dr Gunther von Hagens has battled legal threats, Parkinson's disease, and the threat of bankruptcy

    Dying dream of Doctor Death

    Dr Gunther von Hagens has battled legal threats, Parkinson's disease, and the threat of bankruptcy
    UK heatwave: Temperature reaches 39.8 degrees on Central Line - the sweatiest place in London

    39.8 degrees recorded on Tube

    There's hot (London) and too damn hot (the Underground). Simon Usborne braved the Central line to discover what its passengers suffer
    Kitchens go hi-tech: From robot chefs to recipe-shopping apps, computerised cooking is coming

    Computerised cooking is coming

    From apps that automatically make shopping lists from your recipe books to smart ovens and robot chefs, Kevin Maney rounds up innovations to make your mouth water
    Jessie Cave interview: The Harry Potter star has published a feminist collection of cartoons

    Jessie Cave's feminist cartoons

    The Harry Potter star tells Alice Jones how a one-night stand changed her life
    Football Beyond Borders: Even the most distruptive pupils score at homework club

    Education: Football Beyond Borders

    Add football to an after-school homework club, and even the naughtiest boys can score
    10 best barbecue books

    Fire up the barbie: 10 best barbecue books

    We've got Bibles to get you grilling and smoking like a true south American pro
    Wimbledon 2015: Nick Bollettieri - Junk balls and chop and slice are only way 5ft 1in Kurumi Nara can live with Petra Kvitova’s power

    Nick Bollettieri's Wimbledon Files

    Junk balls and chop and slice are only way 5ft 1in Kurumi Nara can live with Petra Kvitova’s power
    Ron Dennis exclusive: ‘This is one of the best McLaren teams ever – we are going to do it’

    ‘This is one of the best McLaren teams ever – we are going to do it’

    Ron Dennis shrugs off a poor start to the season in an exclusive interview, and says the glory days will come back
    Seifeddine Rezgui: What motivated a shy student to kill 38 holidaymakers in Tunisia?

    Making of a killer

    What motivated a shy student to kill 38 holidaymakers in Tunisia?
    UK Heatwave: Temperatures on the tube are going to exceed the legal limit for transporting cattle

    Just when you thought your commute couldn't get any worse...

    Heatwave will see temperatures on the Tube exceed legal limit for transporting cattle
    Exclusive - The Real Stories of Migrant Britain: Swapping Bucharest for London

    The Real Stories of Migrant Britain

    Meet the man who swapped Romania for the UK in a bid to provide for his family, only to discover that the home he left behind wasn't quite what it seemed
    Cheaper energy on the way, but it's not all sunshine and rainbows

    Cheaper energy on the way, but it's not all sunshine and rainbows

    Solar power will help bring down electricity prices over the next five years, according to a new report. But it’s cheap imports of ‘dirty power’ that will lower them the most