The Big Question: Is the housing crash finally over, and is the market now recovering?
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Why are we asking this now?
Yesterday David Miles – author of a Government-commissioned report on the mortgage market in 2004 and a new member of the Bank of England's Monetary Policy Committee – said that "expectations are crucial in the housing market and they look a bit better now than a few months ago ... My hunch – and I put it no stronger than that – is that we have seen most of the overall aggregate house price falls." The Bank, meanwhile, said that the availability of mortgage credit was expected to rise over the next few months. Earlier this week the Nationwide Building Society's house price index registered a 0.9 per cent rise in prices during May – three out of the last four months' figures have shown an increase; the Halifax and other indices agree. The House of Commons Public Accounts Committee also recommended yesterday that the planning process be speeded up to allow enough homes to be built to meet demand.
Are house prices now stabilising?
Yes – though that doesn't mean they will stay that way for ever. The most compelling data is probably that published by the Land Registry, which is comprehensive. According to that source, house prices fell by 0.2 per cent in May, the same decline as the month before, and that was the smallest drop since February last year. Property values are now 15.9 per cent lower than in May 2008, a gentler fall than the 16.5 per cent annual fall seen in February, and 17.4 per cent below the peak prices of January 2008.
So what?
So what indeed. In the housing slump of the early 1990s there were 17 months when house prices rose, even though the overall trend was firmly downward – a downwards staircase pattern rather than a ski slope. Most graphs in economics exhibit a certain amount of volatility or "noise". So economists, as you might expect, disagree on whether what we are seeing now is really the start of a trend. It could be that prices will stabilise and not rise for a very long time, or they could drift down for another couple of years.
In the case of the last crash, real terms values did not revert to their 1989 peak until 2001. Even the most upbeat of those watching the market expect prices to finish this year lower than they started. Overall, the rough consensus view among economists is for another 10 per cent fall from current levels.
So, is the house price recovery likely to continue?
Some say the current revival in house prices is simply a function of special factors, such as the release of pent-up demand from cash buyers or those with very large deposits. They have been waiting for signals that the market may have bottomed out and are now taking advantage. However, by their nature, these sorts of buyers are neither very large in number nor a sustainable source of strength for the market. The other factor appears to be shortage of stock in what has become a very thin market, which also tends to make "price discovery" more tricky. In the boom, most people knew what the house down the road or the flat below theirs went for; now buyers and sellers are less certain as to what to compare their homes with. Some householders are also reluctant to put their place on the market if they think they will make a loss on it.
Where do we go from here?
The fundamentals in the housing market remain weak for several reasons. One is the number of mortgage approvals for first-time buyers. This is the main source of new money coming into the market and drives prices. Since the onset of the credit crunch and the disappearance of many foreign lenders and mortgage brokers, the availability of finance at high loan to value ratios has disappeared. Analysts at Cazenove say that the main factor that traditionally drives the British property market is the availability of 90 or 95 per cent plus mortgages – of the kind no longer offered. That, apparently, is more important even than very low interest rates or rising incomes in driving demand. Until the banks and building societies return to those sorts of deals – unlikely when they would virtually guarantee negative equity for the borrower in a few months' time – the market will not stage a strong recovery.
This accounts for the collapse in mortgage approvals. At the rate they were falling last summer and autumn, the British first-time buyer would have become an extinct species by Christmas. Since then the number of mortgages granted has picked up, but is still abnormally low – 55 per cent below its long-run average and 33 per cent below the trough reached in the 1990s downturn. The Bank of England's own figures suggest that they are stuck at about 43,000 per month – not nearly enough to push prices up over the long term.
What about where I live?
Northern Ireland is experiencing the worst declines – prices have fallen by 26 per cent compared with this time last year. Wales, on the other hand, is showing the most marked rises – up 7.7 per cent on the beginning of the year. Following five consecutive quarter-on-quarter declines, house prices in Greater London rose by 4.8 per cent in the second quarter of 2009, and by more in prime locations. East Anglia is up by 5.2 per cent over the same period.
Most regions in northern England saw prices fall slightly compared to the previous quarter, although Yorkshire and Humberside and the East Midlands both recorded increases. Scotland is reportedly fairly flat, having held up better than the rest of the nation in the early part of the slump.
Why are falling house prices so bad?
They aren't, for first-time buyers; and they are enjoying the "gloomy" headlines – though they know better than most that houses remain unaffordable when compared to incomes. For homeowners, falling prices have pushed many – about 1 in 10 – into negative equity, destroying their wealth. As long as they have a job and can afford to service the home loan that's only a paper loss; but the rising trend of unemployment and repossessions will turn that into the loss of a home.
What is likely to happen next?
As usual there will be many countervailing forces at work. On the optimistic side (for homeowners) is the huge amount of cash being pumped into the economy by the Bank of England (about £100bn so far) and extremely low interest rates. There are encouraging signs that the economy is probably over its worst decline, although it may still relapse – the so-called double dip recession. Estate agents are seeing more enquiries.
And in the long term?
Long term, housing remains an attractive, tax-efficient investment for most people, and demographics and a shortage of land ought to keep real increases on an upward trend. On the other hand, unemployment is rising, interest rates will probably go up next year, most people are desperately trying to pay off debt rather than take more on. The banks are far from fixed, and the Government will have to repair our catastrophic public finances, which will squeeze the rest of us when taxes have to go up, starting with VAT in the new year.
Is Britain's housing market settling down?
Yes...
* Following the cutting of credit access, mortgage approvals are now expected to rise
* An Englishman's home is his castle – and home ownership remains extremely popular in the UK
* Though some are not convinced, house prices are showing signs of stability
No...
* There remain few high loan-to-value mortgages which are vital for first-time buyers
* House prices are still far beyond what many first-time buyers can afford and so a vital part of the market's mechanism remains damaged
* Higher rates of unemployment and bankruptcies will choke off a revival
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Comments
Lenders have an interest in rising prices. It improves their security and means borrowers are paying higher and higher amounts to lenders to live in the same properties. Borrowers are signing more and more of their future incomes away to the lenders.
Rising house prices not only cost workers more money they also create a false economy as owners extract equity and spend it - a game that cannot continue forever. It is a bad way to run an economy.
If lenders increase lending asset price bubbles are formed which people borrow to join-until the bubble bursts.
The sooner folk realise that rising house prices are a con trick to steal their future earnings the better off they will be.
When will the media realise that joe/jane public are extremely angry and disgustyed with Banks, mortgage lenders, Estate Agents, Buy To Let people (now Buy To Lose), and TV Property Programme presenters.
We need the media to put pressure on the Government to help prices to fall to sensible levels (i.e. average house price being about 3.5 times the average salary) and then to heavily regulate mortgage lending and ESTATE AGENTS .... and to tax BTL out of existence and build up the public sector of houses/flats for people to rent or lease at sensible levels with security of tenure.
Don't be fooled by claims that house prices are set to rise again (if they do economic Depression will be inevitable) ... in the 1990s house price crash there were 33 months, in the first 84 months of the crash that saw rising or zero growth house prices. Come this autumn the impact of massive and growing unemployment, rising taxes, etc. will see property prices continue their heavy downward journey back to the long term trend - house prices have always returned to the long term trend in a crash - so another 25% - 40% fall in prices looks more than likely from here over the next 3 to 4 years. The media should report falling prices as good news and as 'recovery' and rising house prices as bad news and as a sign of the property market being in ill-health.
In fact, in estate agents windows in most parts of the country you would be hard pressed to see the 20% reductions from peak which have supposedly already happened.
The reason?
The Labour government are artificially inflating the UK housing market, for, selfish politicial reasons.
I seems that B@stard Brown thinks we should all pay for housing, even those of us who do not own property.
They have given endless funds to the banks, OUR MONEY!
Socialists in a capitalistic society, close their eyes to the fact that;
If you give to one person, it has to come from the other.
Thats why so many feel as though they have just been ignored, or have been punished for ten years for no reason.
New Labour have created, a badly uneven society, with people in terraced houses, worth nearly a million pounds on paper!
And others, doing the same job, on the same wages, with nothing at all.
All because they did not get onto the housing ladder around 1999.
If that complete B@stard Brown had warned us that he was going to let house prices spiral out of control, in some cases trebling in value, we would have all bought then.
But instead Brown said,
I will not let house prices get out of control.
Are Labour going to bail me out? Give me back the tens of thousands of pounds I have wasted in rent?
The truth is there was NEVER any political will to let the average person, earning an average wage, afford an average house.
Why?
Well, my local LABOUR MP was flipping houses, buying and selling, and making hundreds of thousands of pounds in profits, in the process, from 2000-2007
They never thought that the Telegraph would request to see their expenses under the freedom of information act.
Browns expenses system turned our MP's into nothing more than property speculators. And the average joe, earning avergae wage has been unable to afford a bedsit for a decade.
The Labour Party should be destroyed. Completely.
Complete and utter B@stards. All we ever wanted was to have a small house, we could call our own.
Labours real legacy was to take that well established right away from everyone, and, coincidentally, planned or not, Ministers making huge profits for themselves.
Is it too much to ask that our Public servants do not enter office, purely to become multi millionaires?
Wheres Cromwell when the country desperately needs him?
I will not buy my first house, until they return to 2.5 to 3x salary. Same as my parents did.
Thats all the way back down to 20th Century prices. The only people who benefit from high house prices are EA, Banks, Builders.
Labour have messed up the UK to a disastrous level.
Friday, 3 July 2009 at 10:03 am (UTC)
Socialists in a capitalistic society, close their eyes to the fact that; If you give to one person, it has to come from the other. Thats why so many feel as though they have just been ignored, or have been punished for ten years for no reason.
What on earth does it have to do with socialism? Are you seriously trying to suggest that socialism is New Labour and the help that it is giving to high finance? What a ludicrous suggestion.
Socialism is about workers taking control of their workplace, and ownership being common rather than for the rich capitalist. If you're gonna commnet on a philosophy at least learn the basics of what it is. New Labour is and always has been an extension of Thatcherism (she who took social housing away from our society to give it almost for free to tenants), with some redistribution through NHS spending and tax credits. the rest of New Labour is capitalist. So get real!
As for house prices. We are desperate for them to fall. But the vast majority of the media comment has been and remains pro-rising prices. That is partly because under capitalism, newspapers are not owned by ordinary citizens, but by the wealthy. It's called capitalism.
Free press yes, but narrow ownership, no! And for Heaven's sake, learn some politics before making ignorant comments.
I would agree that the "socialism" of the bank bailout was seen as necessary was because of the utter failure of NL's free market fundamentalist ideas.
And Socialism, certainly weakens notions of personal accountability.
But what would you describe certain nationalised Industry as being, if not Socialism? How much of UK Industry is being nationalised, and how much is Private Industry? When the Government of the United Kingdom, nationalise any Industry, would you not call that an act of socialism?
If not, what would you call it? Using an Adjective please.
Let me ask you this.
Why have HardCore Lefties like Neil Kinnock supported New Labour from the beginning?
Certainly they would call themselves Socialists?
What would you call the Hardcore Socialists like Kinnock who have supported NL from the beginning?
---------------------------------------
As far as your own narrow interpretation of what New Labour is, 'an extension of Thatcherism.'
I would disagree, as would the architects of NL. Blair wrote to Isiaih Berlin, in October 1997, regarding the future of the left.
I would say that New Labour is based upon B@B's twisted interpretation of Berlins two concepts of liberty philosophy. [Neg and pos]
After Blair Gained power by invoking a celebrity cult. He [Quickly] decided that the future of the left was to
'feed the greed of the individual'
Thats what New Labour did. Thats all they did.
No accountability. Take what you want. Its all free. Free money. No regulation. etc etc etc.
[You can see, in Blairs letter, to Berlin, this unasked, and unanswered question. ]
In other words, Blairs solution was 'to give the individual what they want, and they will be happy and vote for us'
And that was it. New Labours entire Political Philosophy.
There is no distinction between New and Old Labour. Old Labour no longer exists.
Labour was, and is, a disastrous experiment.
Labours overwhelming memory will be of the most disastrous reign of any parliament for decades, possibly centuries.
Yet can you explain why I still get flyers through my door , from Labour, postulating that they are the only 'Socialist democratic' party to help the poorest in society!!! HAH!
Under the direction of the twisted Labour experiment, this duo have wreaked more economic damage onto the UK than Hitler managed during the Second World War.
As far as my post above, Many many people are in the same position as I am.
And, like everyone else should do, I Hold the Labour Party directly responsible.
'As for house prices. We are desperate for them to fall' Why have you used the 'royal we?'
Who are you speaking for? Would you describe yourself as a socialist?
Because there is an undercurrent here, of you sounding like an apologist for a dead party with a corrupt ideology.
P.S
As for my veiled suggestion that they are all crooks, and that there was never any political will under the Labour government for an average person to be able to afford an average house, I stand by that 100%
A 'free society' in NL's socialist democracy, was always designed to be, a society where the individual can walk around, unhindered by crime, or persecution.
Hence, Blair and Browns twisted interpretation of Berlins Positive liberty philosophy is exactly why we are living ina country with more surveillance than the former East German Stasi controlled state of the eighties.
A surveillance tool, which makes the government untold billions in taxes.
Oh, as far as me being ignorant, [LOL] I have my copy of BR HOWP, and Hume, amogst others thankyou very much.
2. The nationalisation of the banks was not a socialist policy for straightforwars reasons: It neither has socialist aims nor is owned by what we may call the masses either "through direct worker control or via the state as defined above. It is "owned" by the state at arms length, while run by a capitalist cabal: UK Financial Investments. It is attempting as far as I can see to go back to the pre_credit crucnh past of csasino capitalism.
Many right-wing dicators have had nationalised companies even if they have sought private gains.
It is quite a strain to call this socialism, you may as well call the DDR democratic. And if we are gonna bring up personalities to somehow prove that an entity is a particluar -ist; Thatcher practically supported New Labour, telling Murdoch before the 97 election that he should be calm about a Blair government; George Orwell was a communist who wrote 1984. There have been reams of ex-communists either in the Tory party or writing for Murdoch.
And Kinnock was merely yet another desperatwe Labourite after 18 years out of power who would accept selling their belieefs for at least some power. Nothing more.
We may have similar opinions of Nu Labour, but we a million miles apart in the why. And frankly, although mine may be prejudiced, even wrong, yours is wacky and certainly wrong.
Nu Labour is trying to prop up a failed system, and it is absolutely capitalist. They are a disagrace.
I see a lot of politicians (not all) as snouts in troughs. I certainly don't recognise that all or even most were from the Labour Party. But still, it's outside the reference points of this conversation. We are talking about whether bailing out and then feeding the Banking world with our money is socialism. It isn't.
You later say that you have copies of Hume etc. Having the books does not mean you understand them. Justify calling New Labour and its failed policies and the failed free-market fundamentalism they are based on as socialist, without saying "oh this man was a socialist 30 years afgo and now supports nu labour therefore, they are socialist".
I would certainly not suggest that I knew anything about a nameless faceless person on a bulletin board. You have no idea who I am, what my education is or what my understanding is. Dont be so cocky as to suggest you do! Admittedly its been a while since I read A Treatise of HN.....But how would you know that?! ^^
----------------------------------------
'I see a lot of politicians (not all) as snouts in troughs. I certainly don't recognise that all or even most were from the Labour Party'
I did not suggest that all were from the Labour Party, but now you have brought it up, allow me to direct you toward this list of The MPs who voted in favour of keeping the additional costs allowance for second homes, The MP's who expected us, the taxpayer, to continue to pay for their second homes allowances, such as 50" flatscreen TV's, Artwork, Having pictures framed, food, etc etc etc Expenses running into tens and tens of thousands of pounds, per individual, was voted on in the HOP, exactly one yar ago tommorow.Prior to the expenses scandal breaking in the DT.
http://209.85.229.132/search?q=cache:1j
What you will discover is that
146 Labour ministers voted to reject expenses reform for allowances for second homes.
Surprisingly Only 20 Tory ministers voted for it.
I offer this a small evidence of a fundamental difference between the two main parties, and who wantonly desires to abuse an expenses system, designed, for and by Labour Ministers?
----------------------------------------
I never said this man was a socialist thirty years ago, etc etc. I asked you a question about Kinnock. I asked you what you would call him? I think youre wrong to say he has simply thrown away, an ideology, he fought hard for his entire life. If you were to ask many members of the Labour Party they would tell you they are still died in the wool socialists!
I suggested that the failures of New Labour have created, a badly uneven society.
[My wacky views as you call them, are referring to the capitalist/socialist comment]
It is Labour who are still describing themselves as Democratic Socialists.
I would describe the entire Labour Party are a bunch of hypocritical Champagne socialists, which is where the comment I made came from. I.E The problem with socialists in a capitalistic society.....etc.....I was thinking of how Ministers Like Mandelson, and others disregard the notion of personal accountability, when it suits them. How they fall back on and twist the meaning of socialism to suit their own whims.
I agree they have no long temr plans to control the banks. But bailing out the banks, after the fact is stil an act of socialism. Whatever their long term intentions.
'Socialism is about workers taking control of their workplace, and ownership being common rather than for the rich capitalist.'
Frankly i think that is textbook speak. And smacks of the romanticism of communism. Give me an examples of a country where socialism has actually worked, as part of an ideology, on a national scale, with non detrimental effects on a society?
This coercion, as political scientist Friedrich August von Hayek states, To make and enforce decisions, the government must be run by the most amoral and ruthless
In a socialist society, the people must be convinced that their own self interests and livelihood rest with the centralized government.
The examples of socialism in the Soviet Union and Germany can be used to demonstrate how socialism and control of industries by the government led to total control of the peoples lives.
In Stalins Five Year Plans, people were forced to work long, hard hours and jobs to support the state industries.
When power is so highly concentrated by the government, it breeds distrust by people in a democracy who want to have a say in their government.
Lastly, there is always the danger that socialism results in a totalitarian government in which the government has total control over the peoples lives.
Just wondered how this squares with Sean's previous discussion of a W shaped recession.
http://www.independent.co.uk/news/busin