There is no doubt about it, there have been signs of better times ahead for the UK housing market lately.
But, two property market bears came out over the weekend, spreading their gloom. What do you think will happen? Here is one theory.
Goldman Sachs warned last Friday that house prices will not hit bottom until the first half of 2010, and predicted that prices sill have a further 10 per cent to fall. Mind you, if they are right, at least that means we have passed the halfway stage.
Goldman made their prediction despite expecting sales volumes to rise by about 12 per cent next year. “Improving volumes may support house prices in the short term, but the negative outlook for unemployment into the [first half of 2010] and an above-average affordability ratio will limit the potential for a sustained improvement in our view,” said the Goldman report.
Meanwhile, according to the website propertylive.co.uk, 65 per cent of would-be first-time buyers believe they will never be able to afford to buy their own home. In some parts of the UK the number is 92 per cent. And of those who do think they will be able to buy their own home eventually, very few see this occurring in the next couple of years.
The problem for first-time buyers of course is that they are being asked to fork out a 20 per cent deposit.
The truth is, the UK property market is going through an interesting phase. Of late there have been promising signs. Houses are cheaper, interest rates are at rock bottom. If you can get the finance, then the cost of buying a house right now is low, very low.
But there are some snags. When you buy or sell a house there is of course a chain, and every chain needs a start. Typically this start is provided by first-time buyers – but they are still on the endangered species list; buy-to-let investors, but they also are suffering from a shortage of available credit; and those who are looking to buy a second home – but they have been clobbered hard by the downturn.
It seems though, that owners of property are very reluctant to sell at a loss. They have their perceived idea of what their property is worth, and they will not sell below that price – maybe they can’t afford to. So while demand is slow, so too is supply.
So while the property market sees such small volume, it can be influenced by quite small changes.
Over the next few years we will see conflicting forces at work. On the one hand, you have rising unemployment and a shortage of credit pushing down on the market; on the other hand, cheap interest rates helping affordability and pulling it up.
But, in the longer term, the key issue may be what happens to interest rates. Should rates start rising again, then that could kill off any recovery, in its tracks. And for as long as average house price to average income is high – which it still is – this danger will never go away.
There are a lot of ideas going around to find a letter to describe the shape of the economy. For the property market the most likely letter seems to be ‘W’. We have seen a crash, we are likely to see a mini recovery, but this may well be followed by further falls.
© Investment & Business News 2013