Outlook: There are now so many house price indices – not to mention a campaign for the launch of a better official yardstick from the Office of National Statistics – that it can sometimes be difficult to make out a clear picture of what is going on in the housing market. This, however, is not one of those times; and unfortunately thepicture is unremittingly grim.
The 0.9 per cent fall in house prices for February that Halifax revealed yesterday takes theannual decline to around 2.8 per cent. Is there any chance of these declines tailing off? Not unless something unexpected happens to Britain's economy.
We know that the decline is not going to be arrested in the next few months because we already have data on demand and supply right now. Surveyors say that whilesupply is tightening, with fewer new instructions from sellers, demand is constricting more quickly, with buyers ever thinner on the ground. Approvals of mortgages – which, by the way, are already more expensive than they were in 2010 – remain stagnant.
What about later in the year? Well, the macro-economic environment does not augur well. Rising unemployment, decliningconsumer confidence and a level of inflation that requires a monetary policy response are not factors that are conducive to stabilisation of the housing market.
Halifax said yesterday that it expected house prices to register a fall of around 2 per cent for 2011 as a whole. But it is difficult to share the lender's view that the drop will be so modest. The fact that housing market activity is so depressed may limit the scope for volatility, but it is difficult to see why the sort of monthly fall reported yesterday will not continue.
One other point about falling house prices. There are those who challenge the conventional wisdom that a setback for the housing market is bad news: most often on the grounds that price falls might do a favour to the many people who were unable to get on the property ladder during the boom years.
It is a reasonable argument, but this year it is not one that is going to stack up. Measures of affordability are not likely to show housing getting any cheaper, despite the further price falls to come. For one thing, interest rates are set to rise – it's not clear when, but it will be a shock if borrowing costs are not higher before the end of the year. For another, first-time buyers generally need much larger deposits than in the past.