House Price Alarm Bells Ring

[Guest Time 2 raise Interest Rates]

Today's Standard "House price alarm bells ring in ears of soft-landing optimists by Jane Padgham.

Suddenly, the idea of an early Nineties-style housing crash does not look quite so fancIful. Grim reports in recent days have cast doubt on the widely held belief that the market is on course for a soft landing.

Halifax set alarm bells ringing last week with figures showing a 0.6% price drop in May, the sharpest fall since last October. The mortgage lender said the trend was much lower than suggested by the 5.7% gain on a year ago.

Prices had fallen in three out of five months this year and declined by 0.1% over the whole period, it said.

Hot on Halifax's heels was a report from the RICS showing a net 49% of its members said prices fell in May - the biggest since 1992, the height of the last housing crash. More worryingly, RICS said the upturn in buyer activity at the start of the year seems to have fizzled out.

So is this simply the latest chapter in the market's gradual slowdown or the start of something more sinister?

Ed Stansfield, property econonmist at Capital Economics, believes the recent price stabilitsation was temporary and that the market is now taking a turn for the worse. He is standing by his firm's long-held forecast that prices will eventually fall 20% and believes the latest evidence supports that view.

"Against a backdrop of consumer retrenchment, the first signs of rising unemployment and the propsect of higher taxes in 2006, we doubt that we will see a meaningful recovery in the housing market any time soon, even if the Bank of England begins to cut interest rates later this year as we expect," he said. "To us, the outlook is for subdued activity and further falls in prices as the overvaluation that has resulted from the recent boom continues to unwind."

George Buckley at Deutsche Bank is another economist who is pessimistic about prospects, predicting a 10% to 15% fall. He has ruled out a lurch in the near term, but claims rising unemployment will trigger sharper falls by the year-end.

The early 1990s crash saw prices tumbling 14% from their peak in 1989 to a trough in 1993, leaving 1.6 million people in negative equity. Though Buckley expects a similar price collapse, the impact is unlikely to be as painful given the extent of over-valution in today's market. In other words, it would simply remove the froth that developed during the boom. "The difference of course is that, during the previous downturn, the combination of negative equity, high interest rates and a 1.4 million rise in unemployment led to a flood of houses being offered for sale, which looks less likely this time round." Buckley said. "Should prices fall as we expect, there may be modest amounts of negative equity, but nothing on the scale of the early 1990s, and such developments are likely to be met with interest rate cuts by the Bank of England."

Other experts, however, are clinging to the belief that prices will stagnate at worst. They say a solid economy, record employment and low interest rates will continue to underpin the market.

Mark Saddleton (VI - my two pennies worth), group strategist at Nationwide, which is predicting house prices will rise by up to 5% this year, said: "We still think the fundamental supports are there. The stories of doom and gloom that are doing the rounds are not reflected in any experiences we've seen. There is nothing to suggest we are on the brink of a dramatic downturn."

Who will be right? Much depends on whether buyers return in the autumn. The traditional spring sprint to the estate agent was more like a gentle jog this year.

But there are signs vendors are becoming more realistic about asking prices, which should entice purchasers back after the summer lull.

Stable interest rates have also clearly been good news for the market at a time when the household sector is burdened with record debt. Another rise in borrowing cost, which BANK OF ENGLAND GOVERNOR MERVYN KING WARNED THIS WEEK SHOULD NOT BE RULED OUT, MAY BE THE DIFFERENCE BETWEEN A CRASH AND A GENTLER DRIFT BACK TO EARTH.

[A Fool & His Borrowed Money]

Today's Standard "House price alarm bells ring in ears of soft-landing optimists by

<{POST_SNAPBACK}>

optimism

noun

the tendency to be hopeful and to emphasize the good part of a situation rather than the bad part; the belief that good things will happen in the future:

pessimism

noun

the tendency to emphasize or think of the bad part of a situation rather than the good part, or the feeling that bad things are more likely to happen than good things:

realism

noun

a way of thinking and acting based on the facts of a situation and what appears to be possible, rather than on hopes for things which are unlikely to happen:

I'm a chap who believes the third one

Bit like:

Agressive= optimism

Assertiveness=Realism

Submissive=pessimism

Just to clarify things!

Edited June 15, 2005 by A Fool & His Borrowed Money

[Grime- skint wouldbe ftb]

GAME OVER

[john]

realism 

noun

a way of thinking and acting based on the facts of a situation and what appears to be possible, rather than on hopes for things which are unlikely to happen:

So, according to this article, the principle fact is that house prices have fallen by 0.1% over 5 months. 0.1% is surely within the probable error limits for any measurement of this kind. So what we have so far is a flattening of the curve, there is no way you could describe that tiny fall as a price crash. Of course, it might become a crash, but then again it might not - houses are still more affordable than they were just befor the last crash and people are generally happier about borrowing money these days.

I notice that in one village in Hertfordshire which I visit regularly (although I live in the SW) most of the larger than usual number of 'For Sale' boards which decorated the village for the first few months this year have quite suddenly been replaced with 'Sold' boards and not many new 'For Sale' boards have appeared. Is this just a one off observation for that particular village, or is it the start of nervous house buyers getting over the surprise of the interest rate rise of a year ago and just now starting to think that interest rates are actually still quite low and quite stable.

[Guest Time 2 raise Interest Rates]

optimism 

noun

the tendency to be hopeful and to emphasize the good part of a situation rather than the bad part; the belief that good things will happen in the future:

pessimism 

noun

the tendency to emphasize or think of the bad part of a situation rather than the good part, or the feeling that bad things are more likely to happen than good things:

realism 

noun

a way of thinking and acting based on the facts of a situation and what appears to be possible, rather than on hopes for things which are unlikely to happen:

I'm a chap who believes the third one

Bit like:

Agressive= optimism

Assertiveness=Realism

Submissive=pessimism

Just to clarify things!

<{POST_SNAPBACK}>

Personally, not in any of the above but this article was written in the London edition of tonight's Evening Standard that has a circulation of 500,000 copies per day. Don't see it doing the housing market optimists too many favours.

[HenryWeston]

So, according to this article, the principle fact is that house prices have fallen by 0.1% over 5 months. 0.1% is surely within the probable error limits for any measurement of this kind. So what we have so far is a flattening of the curve, there is no way you could describe that tiny fall as a price crash. Of course, it might become a crash, but then again it might not - houses are still more affordable than they were just befor the last crash and people are generally happier about borrowing money these days. 

I notice that in one village in Hertfordshire which I visit regularly (although I live in the SW) most of the larger than usual number of 'For Sale' boards which decorated the village for the first few months this year have quite suddenly been replaced with 'Sold' boards and not many new 'For Sale' boards have appeared. Is this just a one off observation for that particular village, or is it the start of nervous house buyers getting over the surprise of the interest rate rise of a year ago and just now starting to think that interest rates are actually still quite low and quite stable.

<{POST_SNAPBACK}>

Yea SOLD!! and in very very small writing "subject to contract" so it means nowt really

Edited June 15, 2005 by HenryWeston

[john]

Yea SOLD!! and in very very small writing "subject to contract" so it means nowt really

<{POST_SNAPBACK}>

Yes, of course 'Sold' is 'subject to contract' and a few sales do fall though but most do complete.

[gone west]

Yes, of course 'Sold' is 'subject to contract' and a few sales do fall though but most do complete.

<{POST_SNAPBACK}>

Now that would be a good statistic to see, if we could find a reliable source.

[Matt]

I tell you what John, the opposite has happened in the south west of sheffield where I reside - a large number of sold signs appeared recently that have gone back to 'for sale'. The south west of sheffield is one of the most prosperous areas in the country and these properties will be at the end of any property chain most likely. I bet the first time buyer at the other end of the chain has not made an offer acceptable to the vendor and the whole house of cards has been blown over. Honestly, in every part of the country I've been to recently, I've never seen so many for sale signs in all my life. 'bout bloody time.

Edited June 15, 2005 by Matt

[messychopper]

So, according to this article, the principle fact is that house prices have fallen by 0.1% over 5 months. 0.1% is surely within the probable error limits for any measurement of this kind. So what we have so far is a flattening of the curve, there is no way you could describe that tiny fall as a price crash. Of course, it might become a crash, but then again it might not - houses are still more affordable than they were just befor the last crash and people are generally happier about borrowing money these days. 

I notice that in one village in Hertfordshire which I visit regularly (although I live in the SW) most of the larger than usual number of 'For Sale' boards which decorated the village for the first few months this year have quite suddenly been replaced with 'Sold' boards and not many new 'For Sale' boards have appeared. Is this just a one off observation for that particular village, or is it the start of nervous house buyers getting over the surprise of the interest rate rise of a year ago and just now starting to think that interest rates are actually still quite low and quite stable.

<{POST_SNAPBACK}>

We all know it's going to crash and burn

interest rates are actually still quite low and quite stable.

And this means ?

[Realty Cheque]

Jane Padgham seems to have 'Alarm Mania' bless!

Alarm 1

Brown sounds alarm on prices

Jane Padgham, Evening Standard

17 December 2002

Alarm 2

Alarm over debt, house prices

Jane Padgham, Evening Standard

18 September 2003

Alarm 3

Alarm over equity release rise

Jane Padgham, Evening Standard

28 August 2003

[Lord Blackadder]

What a way to start the day!

Reading articles like this at 7-30am is almost better than the wife rolling over with a glint in her eye.

And before you say, I know what this site has done to me: I'm now a HPC obsessive.

Bring it on! (Both with any luck, but that might be the equivalent of a 40% fall)

[Guest Time 2 raise Interest Rates]

Jane Padgham seems to have 'Alarm Mania' bless!

Alarm 1

Brown sounds alarm on prices

Jane Padgham, Evening Standard

17 December 2002

Alarm 2

Alarm over debt, house prices

Jane Padgham, Evening Standard

18 September 2003

Alarm 3

Alarm over equity release rise

Jane Padgham, Evening Standard

28 August 2003

<{POST_SNAPBACK}>

And she's correct on all three.