UK house prices heading for a double dip

Anyone looking for good news on the UK property market certainly didn’t get it this week. First came the Halifax numbers showing that prices across the country fell 0.6% in June. Then, a few minutes later, up popped the numbers from Acadametrics. They showed much the same thing – prices down 0.5% in June.

Still, despite these falls, both press releases managed to put a positive-ish spin on things. The Halifax pointed out that the bad June numbers “continued the slowdown in house price growth since the beginning of the year following the moderate recovery in prices during much of 2009”. But this was still in line with their view that “house prices will be broadly unchanged over 2010 as a whole”.

Acadametrics agreed, suggesting that while they can’t “discount further house price falls over the next few months” there is nonetheless “an army of over one million would-be first-time buyers delaying purchases, who are ready to enter the market when conditions allow”. This, they say, “suggests the current drop in house prices may well be short lived”.

Other commentators went for even more optimistic interpretations: the falls, said Stuart Law of property company Assetz, “should not be read as prices reversing”. Hmmmm.

It seems to us that however you look at the numbers, you can’t help but read them as saying that prices are reversing. Graham Turner of GFC Economics points out that if you look at a rolling six-month average of the Halifax numbers, prices are well into negative territory: the number has fallen from a recent peak of over 14% to -3%.

Not all the indices are showing such a dramatic downturn. But it is worth noting that in the recent past, the Halifax numbers have been a better leading indicator than others when prices have been turning down. So a fall of 3% on the Halifax numbers, says Turner, represents a “major reversal” and should make it clear – to most people at least – that the UK housing market is “entering a second downturn”.

“Strong foreign interest and a revival of financial sector bonuses may have given some impetus to house prices in London and much of the South East. But for the rest of the country a 16% drop in mortgage approvals in the six months to May would appear to be taking its toll.”

That may change of course. But it is hard to see how. We know that the public sector is in trouble, we know that the private sector isn’t exactly in clover either, and we know that mortgages are going to continue to be thin on the ground, thanks to the ongoing difficulty our banks are having rebuilding their balance sheets and refinancing.

There may well be, as Academetrics suggests, an army of would-be first-time buyers out there, keen to get into the market when “conditions allow”. But conditions don’t and won’t allow. Back at the peak of the bubble in 2007 nearly 50% of the mortgages approved were self-cert mortgages (‘liar loans’ or ‘tax-evader loans’, depending on how you look at it).

Those don’t exist any more. Nor do 100% loans, 110% loans, or, except on paper, much in the way of 90% loans. And with house prices on the way back down and the Bank of England on the verge of withdrawing its massive support from the mortgage market, that is highly unlikely to change. One day this house price bubble really will burst.

  • NightRaider

    With prices at current multiples to earnings, those thinking about buying should sit back and decide where they realistically think that ratio can go from here. 7x, 8x, 9x? We are looking at a market that has just turned down again (if only slightly for now) even when rates are at mutliple century lows. If you sink and you’re wearing armbands….

    Given the austerity package and growing strain on mortgage lending (the best deals are already being pulled), prices are unlikely to run away from first time buyers at these levels even if rates stay here, because the enviroment is deteriorating. I’ve been a house price bull up until now, given the steroid kick from the MPC, but when rates are at essentially zero, governments are cutting and prices are flat to down, the game finally appears to be over for this cycle.

  • UKestateAGENT

    i couldnt agree more – mortgage rates have yet to go one way, public sector cuts are between 25-40%, buyer confidence has dropped, halifax report increasing house price falls in the last three months and lending criteria will get harder let alone lending multiples. the market is cooked -afer a lovely holiday the credit card statement hit the floor and its time to pay it back!!

  • Albert Ross

    Looking at Rightmove today:

    One bedroom studio flat in London for 200k – anyone? Two bedroom flat in South Manchester with barely enough room to squeeze a full size bed into each bedroom and no outside space 180k – any takers?

    Both of these are around 7-8 x the average income (25k) so it’s no wonder most first time buyers are completely screwed. So who actually buys this overpriced rubbish? Would anyone really sell themselves to a life of mortgage slavery for this?

    Even if I had a spare 200k burning a hole in my pocket (which I don’t unfortunately) I wouldn’t touch property at current price levels with a shi**y stick. If I bought a house now then I’d feel like I was being totally ripped off.

    At least Dick Turpin wore a mask!

  • lisa

    Roll on the next round of house price falls. we sold our house last May after having it on the market for nearly a year and had to sell at a very realistic low price after a few price drops just to get moved – a year on and we are still in rented accommodation looking for the “forever home” having been unwilling to pay the unrealistic rise in prices in the latter part of 2009 due to the lack of supply. Now we are struggling to decide what property to offer on as there is a lot of good quality supply coming to the market in our area at long last – Estate agents are hounding us for offers but we are willing to sit out a little bit longer just to see if prices fall further as there certainly seems to be an oversupply.

  • Dave Robinson

    Perhaps we need the mainstream media to stop talking about house price rises as if they are a good thing. I’ve been dismayed over the past few months at there “It’s OK everybody, prices are on the rise again, the party may have flagged a bit but the cool people have left the nightclub and are on their way”

    Utter nonsense and the sooner we get a serious reality check the better.


  • Albert Ross

    The problem has been is that thanks to the media many people now see owning a house as an asset – a get rich quick scheme. It’s not of course – a house is normally a very big financial liability. A true asset will generate money to pay for itself, whereas a liability will eat money like there’s no tomorrow.
    The only time a house could be considered an asset is when it is mortgage free and you don’t actually need to live in it anymore. Therefore it generates money through long-term rental income (or when you sell it in the case of a second home).

    If you’re not in this situation (i.e. not a professional landlord or multiple property owner) then it’s likely that high or rising house prices are NOT GOOD NEWS FOR YOU.

    The only thing high prices achieve (apart from giving the homeowner/mortgage payer a false sense of security) is to make it more difficult for people to buy, sell or move to a bigger home when the situation requires.

  • JAW

    Everyone agrees house prices have been in a bubble for a few decades, but few agree when it will burst. Nationwide says house prices ratio to earnings is currently 4.4 times whereas the 1983-2010 average is 3.3. This suggests that when the bubble bursts house prices should fall by 28% at least, but will they? Perhaps the long term earnings-prices ratio is moving slowly upwards? Only when the UK becomes less prosperous will the average fall?

    House price crashes generally mirror severe economic downturns and huge increases in repossessions. We are arguably in a depression but low interest rates have prevented many repossessions. BoE interest rate is likely to stay low for 2010 and maybe low in 2011 because of the deflationary effect of government austerities? If so, the bubble burst will wait a while through 2010.

    House price falls are not uniform throughout the UK. Up in London and SE, down in Wales and North, thus affecting the decision to sell or buy.

  • Bob

    In recent days several articles have appeared on here about the printing presses about to be stated up again – surely if they print more then shares and assets, such as houses, will go up?

  • Morpheus

    – Money printing increases the price of all physical assets and shafts paper savers.
    – Paper savers will eventualy desert deposits and banks will start to lose their savers reserves. The BOE will give then some nice free monoply money to backfil the loss of deposits.
    – Assests will then pop, the banksters will have nice big smiles stroking their monoply money and the paper savers who moved to assets will be shafted. Either way your doing down unless you get your timing right. Isn’t life just fun ^^

  • Supermarine Blues

    People have been self-pityingly whining about the affordability of housing for decades now.

    If the ‘nineties should have taught us anything, it’s that property is merely a commodity; the price can go up as well as down so caveat emptor.

  • Stuart

    Albert Ross: A true asset will generate money to pay for itself…

    … houses do effectively generate money – by covering the owner’s living expenses, which homeowners would otherwise pay in rental costs – in my area that is about 12,000 p.a. at current market rate. That value gained is of course offset somewhat (or even completely) by mortgage and upkeep costs depending on the owners exact situation.

    I agree with your comments about the “get rich quick” bandwaggon, though.

    However, in my opinion the effect of the “get rich quick” brigade is much less than those who are so frightened prices are moving further out of their reach, that they are willing to take on imprudent debt burdens in order to to buy at the current historically-high prices.

    Of course many of those in that situation are bailed out (at the expense of savers) by the UK equivalent of the “Greenspan Put” – i.e. 0.5% interest rates. Maybe this should be the “Mervyn King Put”?