If you own property, look away now because what follows is ugly reading. Those green shoots Margaret Beckett thought she saw in the property market were illusory, and the 2.0 percent upswing in house prices that Halifax recorded
for January has been more than offset with a 2.3 percent fall last month. So far they are down 20 percent from their peak, and it won’t get any better. Sure, mortgage rates are falling – but banks are wisely demanding huge deposits now. So the actual cost of getting into the market - ie, he deposit required as a share of average income - is the highest since data began 35 years ago.
Anyone thinking of buying a property should heed this sentence in note today from Citi:
“We doubt that house prices have yet reached their low, and expect that prices will fall a further 10%, and perhaps 20% from here.”
Their forecast is for 3 million people, about one in four of our mortgage holders, to be in negative equity by next year.
Given the close correlation between house prices and consumer spending in Britain, this feel-bad factor will last for as long as so many are in negative equity. And how long will the negative equity last for? I leave you with this graph, showing how house prices took nine years to recover in the last downturn – and were propelled back upwards with a credit binge that a recession-scarred Britain is unlikely to repeat. So it may well be the 2020s before anyone who bought in the last few years will recover their capital.