Ominous signs in the housing market - but Osborne must remain undaunted

saddleworth

This looks like good news.
The sooner we get away from the idea that property must always rise in value, the sooner we can achieve some financial sanity.
For those who may feel disappointed, console yourselves with the thought that the less "profit" for you, the less is stolen from the next generations.
Most politicians in recent years have liked property bubbles as they thought it made voters feel good. The economic stupidity of this will be with us for many years to come.
We need a sane stable property market not a playground for speculators and property pornographers.

Trem

Bring it on. It might give us youngsters a chance to buy a reasonable house rather than living a life of servitude to our BTL masters!

Alex Gallagher

sadleworth

Agree with your sentiments on house price pornography.

But seeing these figures as an indication of economic activity, they are bad news....

Bruce Robertson

"Ominous"? "Our prospects"? When will it sink in that over-priced property poisons absolutely everything?

TrevorsDen

Your graph shows an endless succession of various rises and falls. It looks statistically meaningless to me. House prices rise and fall and over time they would seem to rise on average.

So?

Why this obsession with double dip this that and the other? Whatever happens will be an inevitable construct of what went before, ie artificially trying to prop up a falling economy just prior to an election. ie a good old fashioned pre election spending spree. There is always only one outcome to that and we must endure it.

Labours notion that the solution to overspending is to overspend some more is risible.

PayDirt

While the British worry about the value of their bricks and mortar, another essential industry gets taken over, this time by the French (again, remember British Energy bought by Electric de France last year?). International Power, once of the CEGB is today owned by Gaz de France (35% by French Govt). The water supply got sold to the French, now the electric generation. The other big players in UK are German owned. It seems that shortly there will not be much else to sell. Even BP is going cheap nowadays.

Carroll Barry-Walsh

Property is hugely overpriced in this country for what it is. A reduction in house prices would be a good thing. The idea that you can have ever-rising house prices without there being either inflation in the wider economy or a bubble which will burst, painfully, at some point is a fantasy.

Property should be for living in and the only property which should increase in value should be that which has genuinely been improved and properly maintained.

Rhoda Klapp

It amy be true that rising house prices do no good to those who must live somewhere, but they do increase confidence among those who have discretionary spending power. Not poor folks, they cannot reflate an economy. Level house prices will do, in a liquid market. But we don't have a liquid market, and we also have factors (lenders, in fact) who tend to push the market in the wrong direction at any given time. When prices are rising, they lend too freely to push the trend, when prices are falling, they stop, or demand more deposit and better credit.

It's no good railing against the British love of bricks and mortar. Supply and demand is the prime mover, and while we are importing demand and limiting supply (both by explicit policy) we are not going to see a different long-term trend. Especially as the damnable treasury will pounce on any sum of money you acquire by any other means of saving other than in a main home, and change the rules so often you have no chance at all of successful long-term planning. Bastards.

Dennis Churchill

As our population continues to rise towards 70 million we need to adjust to no longer being owner occupiers but tenants.
The decrease in property prices will allow investors, rather than owner occupiers, to buy. Mortgage companies will not advance high proportions of value against a falling market.

Anne Wotana Kaye 1

Housing in this country is sick on two counts. One it is grossly over-priced, and if it was devalued by at least seventyfive percent it would reflect a more honest market value. Young people would at last stand a chance to either buy or rent a home at a reasonable price. Note the operative word is 'home', not investment, which the greed so prelevant has given rise to. The second count is the quality of houses being built here. Terrible architecture, poor workmanship, at the best poor imitations of the pre-World War II mass housing estates filled with little boxes, and at the worst, Stasi, Eastern European barracks.

Nash

Didn't house prices rise 23% last year? They do have to adjust sometime.

I bought my flat in 1974 at 20% less than the seller bought it for the yer before. Reason: Rent control extended to furnished accommodation. People got rid of their furnished rentals.

Of course people will unload investments to avoid hikes in capital gains tax.

TrevorsDen

Why should a decrease in prices act against owner occupiers?

PuppetMaster

We've just lived through the biggest property bubble in our history, linked as it was to the largest credit bubble in world history. Will house prices go down? Yes. Against gold they are already down 70%, once the cuts begin to bite they will fall a great deal further.
There is nothing anybody can do to stop them falling.

JohnAnt

I have some sympathy with those who are hoping to use their owner-occupied property as a pension boost or capital for income, to be cashed in when they retire and trade down.
Of course, it's not a healthy financial expectation, but how much does Joe Soap have left over to invest in an equity ISA and SIPP after the monthly mortgage is paid? And how much does JS know about where and when to invest it? Unless he knows the markets well enough to trade them, his portfolio will be a single streak of red by now.

TomTom

There is no one "housing market". It is not a macroeconomic variable. There are "regional housing markets" which reflect local issues. This aggregation of houses as if they are uniform products churned off a production line with access to the same plots of land is facile.

The sooner adults start spouting information and cease using surveys where just 40% respondents have checked the boxes on the form, the better facts will be.

These surveys are meaningless. Unique houses have different characteristics from off-plan houses and pricing differentials. Surveyor prices are notoriously unreliable and new houses are typically 30% over-priced.

Only the District Valuer can give HMRC valuations, the rest is simply opinion ususually priced up to win a sale mandate only for the agent to push for price cuts to guarantee a quick commission.

If mortgages are not available interest rates tend to be low, and houses tend not to be bought

Reality Check

There are simply too many risks in the UK economy for housing demand to continue at current growth rates. There is only so much QE that governments can pursue before more unknown risks surface and leads to even more weakness in the housing market. The odds are clearly on the side of caution. Caveat emptor

Dennis Churchill

It is still necessary to consider Supply & Demand whether we are considering coco beans or housing.
Commentators writing that property is overpriced in this country don’t seem to have considered our virtually unprecedented population increase in the last decade. We have the fastest growing population in the EU.Most of this is concentrated in the South East.
Has new construction kept up with this increase in population? Of course not. No more than Electricity generation, water supply or transport.

Fex Urbis

Housing price corrections in the economic cycle usually takes about 6 years. The credit crunch was an extraordinary event but wasn't really part of that cycle. Sadly the media doesn't understand jack shit when it comes to economics or what an economic cycle even is; people have listened to them and have believed all this artificial housing hype of the last 12 months, including I might add your colleague Fraser Nelson.

Well more fool them, if you are long property for investment purposes you're in for a miserable time, but hopefully this will herald more normal times for people who just want to buy houses to live in.

It doesn't add up...

Collectively, we are borrowing £1,238bn in mortgages. Just prior to the credit crunch around half of that was borrowed abroad (and some £300bn in overseas short term deposits) - so our mortgages were effectively paying interest to foreigners. Banks have to roll over £800bn of financing by 2012, including more than £300bn (maybe as much as £500bn+) from the Bank of England that will be added to National Debt if they can't finance it commercially.

The UK is unique in propping up its property bubble: prices have fallen in the US, Ireland, Spain, etc. Foreigners won't be keen to supply lending on inflated values to prop up our banks. Our banks won't lend because they know that their mortgage dominated books will suffer losses. They need to see the bubble purged before they will have confidence to lend to industry. Industry needs to see the bubble purged before they will have confidence to invest.

If house prices are going to resume a deflation trend, that is actually very good news all round. Without it, we could too easily wind up with hyperinflation and economic destruction.

Victor Southern

There are two fundamental misconceptions about the UK economy.

One is that ever-increasing house prices are a good thing. Since they reflect all or some combination of the following causes they are a very bad thing - currency deflation, rampant inflation, over-population, over-supply of money due to economy overheating.

The second grand misconception is that very low interest rates are a good thing. They are generally a bad thing since they discourage saving and so reduce the money available for lending - that in turn leads to business low-downs, unemployment and a reduced tax base. They profit spenders and borrowers but penalise savers and investors, an odd outcome to laud as a "good thing".

Quantitative easing is rather like some of the Victorian "cures" for serious diseases - they involved mercury, strychnine, arsenic, opium and so forth. Eventually it was hard to decide if the cure was not worse than the disease although some symptoms were alleviated.

I am sorry if this conflicts with opinions of the Kruegers and Blanchflowers of this world but evident truth trumps theory any time.

Frank Sutton

What's ominous about a fall in house prices?
They're vastly over priced, which is one symptom of the economic malaise we're in.
(And I see that most posters here don't agree that a fall is bad thing!)

AndyinBrum

I think the issue is that those in negative equity can't sell, which is fine if they don't need to move, but if they do, for say, work. Then they can't sell and they can't follow the work. If they get made unemployed it means if they have to default on the mortgage or sell the house, they're still in debt.

Mike Thomas

House prices are no economic indicator, they are always in hindsight the result of loose money chasing assets.

Fiscal tightening, house prices fall. Well they would wouldn't they?

After the irrational exhuberance of the last decade and the ridiculously loose fiscal policy of the last government, this is welcome news that the economy can be controlled.

A sustained period of zero real increases in house prices would increase affordability and reduce private credit exposure which is at all time high levels.

That in turn would reduce credit over-exposure in households which would in the medium-term create the potential for more sustained (and sustainable) economic growth.

But as a leading indicator of a double-dip recession? Give me a break.

The BoE finally made the admission that their economic outlook was complete rubbish and their 'inflationary blip' is anything but. That is much bigger news. It is supply side inflation, the very worst kind and fiscal tightening is precisely the right medicine to tame this inflationary pressure.

To the government, cutting fast and cut hard, get off the back of business and re-energise the real engine room of growth - the private sector.

TomTom

"A reduction in house prices would be a good thing. "

Yes it would finally shaft the banks. Even better would be a total collapse in commercial property prices then we can see the end of the financial system.

Funny how people cannot understand Double-Entry Bookkeeping on this thread. There must be a Debit to match a Credit, so if house prices collapse then somewhere the reduction in Asset Values is matched by a rise in Debit Values.

Negative Equity does not worry the US housing market so much because it is Non-Recourse Debt so defaulters are not pursued for recovery.

Further FannieMae is pumping huge amounts into propping up the US housing market with some very dodgy deals. After all, why should Americans lose their homes when they have saved Goldman Sachs and its bonuses by bailing out AIG Insurance ? The only insurance company rescued - because without AIG there would have been NO bonuses at Goldman Sachs and NO Goldman Sachs.

The poor comprehension of Economics displayed regularly on threads reveals exactly why Britain is a basket case. Each smug solution is simply a reiteration of the folly that caused the mess earlier in the causal chain.

The British economy is built on housing. The banks' balance sheets rest on a bed of nitroglycerine which is property finance. The system sees property loans as second only to Gilts as top-grade paper.

This is the base layer of the pyramid as riskier assets are collaterised on property. A fall in house prices will send thousands of small businesses to the wall and give local authorities real problems housing families as Council Tax receipts collapse.

The Marxist approach on the Spectator threads to destroying society and the economy is fascinating to behold. That they consider themselves "prudent" and "conservative" is risible

Dennis Churchill

Housing crisis? These people have a housing crisis.
From today�s Daily Express:
http://www.dailyexpress.co.uk/posts/view/192506

lescam

"I think the issue is that those in negative equity can't sell"

And why are they in negative equity? Because they borrowed too much, relative to the value of the property. And why did they borrow too much? Because (a) they couldn't be bothered to save up a larger deposit, thus reducing the mortgage, or (b) the bank was willing to lend a ridiculous amount of money, or (c) they had unrealistic visions of the kind of property they wanted.

In the past borrowing was limited to 3 times ONE salary. This meant borrowers were limited to buying cheaper properties, but they were unlikely to get into negative equity. Why aren't people satisfied with a smaller, cheaper property? Why do they have to have 3-4 bedrooms, 2 ensuites, a conservatory, etc. Doesn't it make sense to buy a 2-bed, with no frills, and not worry about the mortgage? The trouble is that buyers' eyes are bigger than their bank balances.

Dennis Churchill

Lescam
Why do we expect foreign holidays, high tech toys, ever better cars and designer clothes?
We will need to get used to a higher proportion of our disposable income being used for housing. Whether this is a mortgage payment or a rent does not matter.
There is an enormous demand for accommodation, being driven by our rapidly increasing population. If people are prepared to rent better accommodation than they can afford to buy�”due to restrictions on lending to income �“then some of these other goods needs to go.

Fex Urbis

@Dennis Churchill

Spending ever increasing amounts on housing will really get the economy flying.

Our banks and politicos have really screwed up this time. It's interesting to read what TomTom has written, difficult to disagree with, but there is no easy way out, we've all been conned.

Dennis Churchill

Fex Urbis
It is like the apocryphal Irish directions:�If I was going there I would not start from here...�
We are �here�. The whole of the housing debate leaves out the demand factor due to our increasing population. It is the same with our other infrastructure needs. In sociobabel we are in denial.

Simon Stephenson

Dennis Churchill : 6.26pm

If we were to accept your argument that the increasing demands of a growing society will continue to outstrip supply, and I think this is an overstated argument, we still have to take account of the fact that a considerable part of the development of the house price level as it now is has been speculative investment over the last 10 years. People who have committed a greater-than-desired proportion of their income to house purchase have rationalised this decision by regarding part of this commitment as the investment of savings, in the hope and expectation that future increases in property prices will outstrip general inflation. Allied, of course, to the fact that Main Residence Relief from Capital Gains Tax gives property ownership a massive head start over all other forms of "investment" for the unsophisticated small-time saver.

Added to the almost messianic need of Western governments to recycle the currency accumulations of the surplus nations, these features could have no other consequence but than to feed the giant property bubble that only ended when the surplus nations began to doubt the sustainability of the modern Western economic model.

It may well be, as Rhoda Klapp suggests, that there is much suffering attached to a decline in property prices, but we have to wake up to the reality that there has been no sea-change in the underlying proportion of their incomes that people are prepared to commit to housing themselves. We must also grow to accept that state-sponsored planning restrictions are the only obstacles to future housing demand being matched by economically produced supply.

Dennis Churchill

Simon Stephenson
�...but we have to wake up to the reality that there has been no sea-change in the underlying proportion of their incomes that people are prepared to commit to housing themselves. We must also grow to accept that state-sponsored planning restrictions are the only obstacles to future housing demand being matched by economically produced supply..�
Yes but these exist as does the restrictions on increasing the infrastructure needed to support this increased population.
There is also the concentration of population in the South East. The traditional three bedroom Semi with garden is hardly practical when we are looking at the highest population density in Europe. Our latest population projection is 72 million by 2050.
Regardless of why we ended up with this property market we now need to factor in population growth unlike anything else in Europe.
The Sea- change in the proportion of their income dedicated to housing will come whether people like it or not due to scarcity of housing where people wish to live.

Rhoda Klapp

You know what makes houses different from other savings.investments? I can borrow a six-figure sum of someone else's money to make an investment. Although not a one-way bet over any given timescale (but it's going up if you can keep it) and it can be very illiquid when you want to sell, it attracts no CGT, and mortgage payments are in the same region as the rent, and I still have to live somewhere. That's why I and the rest of the British public buy houses. What else was I supposed to do?