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" U K House Prices Are Heading For Another Double-Digit Fall "

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http://www.moneyweek.com/investments/property/uk/uk-house-prices-are-heading-for-another-double-digit-fall-12208?utm_source=newsletter&utm_medium=email&utm_campaign=Money%2BMorning

UK house prices are heading for another double-digit fall

By Associate Editor David Stevenson Jun 02, 2011

It's not looking good for the housing market

At first glance, Britain's house price picture is as confused as ever.

On most measures, prices seem to be lower than they were last year. But the most recent stats from Rightmove (which looks at asking prices) and the government show prices rising on an annualised basis.

That, though, is all history. What'll happen now?

Yesterday the latest figures on mortgage approvals - a handy pointer to the future - were published. They weren't good, which suggests the next move in prices will be down.

But mortgage approvals aren't the only reason to worry about the housing market – as a major new report confirms…

Lending figures point to another 10% fall for house prices

We wrote yesterday about one good way of gauging future house prices – the number of new mortgages approved for house purchases. Changes in this number tend to be reflected in house price indices about four months later.

In April, the number of new loans fell to 45,166. That's a four-month low, and 8% down on the year. And it's miles below the peak of 129,168 approvals seen in November 2006. The number of remortgages is also falling. They were down 10% compared to March.

The late Easter and then the royal wedding might have distorted the figures. But many borrowers have reportedly been switching to variable-rate mortages to cash in on current low rates. If this refinancing has been propping the market up so far, it looks as though it's drying up.

You can keep track of the mortgage approvals indicator – and several others – on our house price indicators page. As you'll see, this latest number points to a further 10% fall in UK house prices.

So how likely is that?

British houses still aren't cheap enough

The first problem facing Britain's housing market is quite simple. It's still not 'cheap' – far from it. Although prices have fallen by 11% from their 2007 peaks, according to Nationwide (Halifax put it at 20%), they still look too high.

"Valuations still look somewhat stretched", says a new report from Morgan Stanley's European research team. They reckon the UK's house prices overall are overvalued by "approximately 15-25%".

Some argue that low interest rates justify house prices being higher. The lower rates are, the more you can afford to pay for a property, without your monthly payment stretching you too far. This is the 'affordability' argument.

Sounds convincing. But it's a myth. Why? Because, as Morgan Stanley points out, "once higher required deposits are taken into account, affordability hasn't improved much".

So what happens next?

The key to house prices is the amount of money, or credit, available to buyers. If you give buyers more buying power, they'll spend more, and drive prices up. But if lending is restricted, they won't be able to meet sellers' hopes, and that will push prices down.

The critical factor here is how much 'spare' income potential buyers will have at their disposal. That ultimately dictates how much banks will be willing to lend to them.

The bad news for anyone selling a property is that disposable income is facing a severe squeeze. The UK economy is set to suffer "the slowest pick-up in consumer spending of any post-recession period since records began in 18730", says the FT. That in turn suggests that housing demand – and therefore prices - will remain weak.

First off, many of us are seeing higher taxes nibble away at our wage packets. Secondly, because food and fuel are costing us more, there's less cash around for anything else. And third, fear of job losses as the government's austerity plans really kick in will mean fewer people will be willing to commit to buying a home.

It won't take much to push many borrowers over the edge

Then there's the level of UK interest rates. Normally, with the cost of living climbing to between 4.5% and 5.2%, you'd have expected these to be rising by now. But so far the Bank of England has resisted calls to hike bank rate.

However, as John Stepek recently noted, the risks of Britain importing more inflation from China are steadily rising. That'll put extra pressure on the Bank to hike bank rate (what we all used to call 'base rate').

That would push up the price of home loans too. Morgan Stanley reckons there will be a 1.5% rate rise by the end of next year. That will only push the bank rate up to 2%, still well below inflation. Yet all in all, Morgan Stanley expects a 10% house price fall over this period.

You'll notice that so far I haven't mentioned housing supply – in other words, how many sellers there are likely to be. The widely held view is that supply won't rise by much. With rates as low as they are, the number of forced sellers has proved lower than had been feared.

But that happy state of affairs may not last. The Telegraph reported this week that "up to 300,000 cash-strapped households have switched more than £60bn of home loan debt from repayment to interest-only loans to help cover their living costs".

Meanwhile the regulator, the Financial Services Authority, has "accused Britain's banks of moving struggling customers onto more lenient terms to conceal bad debts". It's a similar strategy to the one the European Union is pursuing with Greece – kick the can down the road and hope something comes up. And it's just as likely to fail.

Reading between the lines, the balance sheets of more and more of Britain's mortgage slaves are becoming increasingly fragile. It won't take much – maybe just a small rate rise – to push many over the financial brink. And that could unleash a torrent of forced selling that could send UK house prices tumbling.

The timing, of course, is unclear. The Bank of England is keen to keep interest rates low for as long as it can, and Morgan Stanley admits that if rates don't rise as they expect, then house prices falls may be delayed until 2013. But we'd note that if rates don't rise, inflationary pressure will only get worse – and that'll put added pressure on consumers' balance sheets too. One way or another, house prices in Britain are heading for another big fall.

Edited by Tired of Waiting

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*Sigh*

Moneyweek again, eh?

They're confusing the matter yet again. House prices will not fall because mortgage approvals are low, but rather mortgage approvals are low because asking prices are too high. All this is telling us is that there are a lot of overoptimistic sellers out there fishing for peak prices... and they can afford to do so when rates are so low and there is no real selling pressure. There's a mexican standoff- not many buyers will pay top prices, and not many sellers will cut their asking prices to more, thus we have a market where transactions are low.

Yes, prices need to fall further to get the market moving again, but while rates are low this sort of low transaction/still overpriced market can be sustained almost indefinitely.

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Yes, prices need to fall further to get the market moving again, but while rates are low this sort of low transaction/still overpriced market can be sustained almost indefinitely.

How about markets being made and prices set at the margins?

If 1 house in a street of similar houses sells at a reduced price (due to a forced sale perhaps), doesn'tthat set a new reduced price for all houses in that street?

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Moneyweek the perma bears.....and how often are they right? Never as far as I can tell. :angry:

The average house price fell 2.2% in April when adjusted for RPI inflation according to the Halifax index, and in real terms the fall has been 9.6% over the past 12 months.

A new low has been reached in the inflation-adjusted fall-from-peak, with prices now down 28.9%, and we're currently 16 months ahead of where we were in the previous crash:

HPC0411.gif

------

In real terms, prices are back to October 2002 levels, although it will now take some pretty significant falls to take us back further, as prices rose very strongly during 2002:

HalifaxReal0411.gif

(...)

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Woohoo, another 40% and people might actually be able to afford a place to live. :rolleyes:

Until a couple of weeks ago I thought 40% would be impossible. Not so sure any more. There is something different in the air this week.

.

Edited by Tired of Waiting

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Until a couple of weeks ago I thought 40% would be impossible. Not so sure any more. There is something different in the air this week.

.

Isn't there just and you're coming round to my way of thinking B).

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Until a couple of weeks ago I thought 40% would be impossible. Not so sure any more. There is something different in the air this week.

.

The problem is the economy will have imploded by then, and you really won't feel like buying. biggrin.gif

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It's all gone a bit bearish recently! :huh:

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Maybe others have seen this in their area before, but it's fairly new to me here in north Birmingham. I'm seeing a lot of 5% gifted deposits and the properties are going SSTC straight away.

How does it work exactly, does the vendor return 5% of the sale, or stump up 5% out of his pocket up front. One agent seems to have a lot on their books so must be asking every vendor to do it.

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*Sigh*

Moneyweek again, eh?

They're confusing the matter yet again. House prices will not fall because mortgage approvals are low, but rather mortgage approvals are low because asking prices are too high. All this is telling us is that there are a lot of overoptimistic sellers out there fishing for peak prices... and they can afford to do so when rates are so low and there is no real selling pressure. There's a mexican standoff- not many buyers will pay top prices, and not many sellers will cut their asking prices to more, thus we have a market where transactions are low.

Yes, prices need to fall further to get the market moving again, but while rates are low this sort of low transaction/still overpriced market can be sustained almost indefinitely.

It can`t and you know full well it can`t. People eventually die, move for work, love etc etc. Surprised it has lasted this long actually.

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It can`t and you know full well it can`t. People eventually die, move for work, love etc etc. Surprised it has lasted this long actually.

It does seem slow, but it is happening! :huh:

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It does seem slow, but it is happening! :huh:

Certainly is. In a few years people will wonder why we ever gave a toss about high house prices (most on here didn`t of course) there will be an "end of times" scenario sometime maybe, us on here won`t see it IMO, our great great grandchildren might? and it certainly won`t be caused by a bunch of UK sheeple getting their ar*ses handed to them in the housing "market" :lol::lol:

Edited by dances with sheeple

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A 40% drop in house prices won`t bring an end to civilisation, bring it on, life will trundle along as it always has.

Of course if it happened in just one year, then yes, it would be an economic disaster, and it would turn into a social disaster too. But I seriously doubt it would be so fast. It is much more likely that prices will fall like 10% / year nominal in the next 3 years. Probably faster in 2012 than in 2011 and 2013.

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  • 312 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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