Are house prices falling? The Halifax house price index, published today, is finally showing a significant year on year fall: average prices are 2.6 per cent down in the 12 months to June. This is the biggest annual fall shown by the index in 12 years. But it is still hard to depict what is happening in the housing market as a bloodbath. The finer print shows that prices are actually up over the last quarter, by 0.3 per cent – with the 12 monthly figure pulled down by what happened by last autumn. As has happens so often in the housing market, predictions of deep gloom (or deep joy, if you are a frustrated first time buyer looking for an opportunity to enter the market) have been followed by nothing more than stagnation.
It is extraordinary in many ways that house prices are not falling further and faster. Mortgage rates have more than doubled for many people, eroding their buying power. Many landlords have been bleating that they will have to sell up because changes to taxes and other regulations no longer make their investments profitable. And yet prices are off by no more than a dribble.
Anyone who is expecting prices suddenly to reset to 1990s, or even 2000s or 2019 levels, is likely to be disappointed
Evidently, it will take more than a Bank of England base rate of 5 per cent to unwind the great housing boom of the past 30 years. It has become so settled in the minds of millions of small investors that housing is the investment which cannot go wrong. Over and over again whenever the market looked like taking a dive the government stepped in with some scheme or other to prop up the market. This has created an expectation among buyers that the housing market will forever be a case of laissez faire on the way up and intervention on the way down. Hence when prices fall even by a minute amount there is always someone looking for an opportunity to invest or speculate.
Added to that there is a chronic shortage of housing. We simply don’t have the empty, unfinished housing estates which come with genuine market crashes such as those in Spain and Ireland after the 2008 crisis. One of the wonders of the property world is an estate of nearly 600 miniature Disney-style castles in Turkey, the leftovers from an over-confident housing boom of the past decade. We are building fewer than 200,000 new homes a year on average – and yet net migration alone last year was 600,000. There is little in the way of spare property, as evidenced by a sharp rise in rents.
With few signs of distress sales, vendors are in no mood to reduce their prices. Once people have established in their mind an idea of what their home is worth it takes a lot to shift that perception. Many would simply sit on their hands rather than accept a low offer.
But what will happen if rates hit seven per cent, as some now think they might? That will give the market a further jolt. But even then anyone who is expecting prices suddenly to reset to 1990s, or even 2000s or 2019 levels, is likely to be disappointed. The housing slump is more likely to manifest itself in the form of a crash in volumes sooner rather than a crash in prices. According to HMRC, sales volumes have already tumbled by a third in the past year (from 99,760 in May 2022 to 74,360 in May 2023). Expect that to fall further before – if at all – we see a corresponding fall in sales prices.
Comments