December proved to be the worst month for the UK housing market since the aftermath of the UK's 1990-1992 recession, according to a survey by RICS, released today. As Tom Stevenson comments in the Telegraph today, if you were there, you'll know how serious that is.'
The number of chartered surveyors and estate agents reporting falling prices rose to its highest level in fifteen years, with just one per cent reporting a rise compared to 61% reporting falls.
Moreover, prices are weakening across all regions, though Northern Ireland, the West Midlands and East Anglia are worst affected. Even London, thought by some to be immune to falling prices elsewhere, registered a balance of minus 54, with seven per cent of property professionals surveyed reporting a drop of 5%.
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The RICS report cited the introduction of the Government's Home Information Pack scheme for the fall in prices, along with the impact of higher interest rates and the pinch' from the credit crunch. Spokesman Ian Perry said that the Bank of England must cut rates to ensure the market remains in a stable condition'.
However, it's not just weaker demand prompted by mortgage banks' reluctance to lend, higher interest rates and the effect that plenty of negative economic news has had on buyer confidence. Rising supply is also having an impact. New sales instructions were at their highest level since May 2007 last month, and the average number of unsold properties on estate agents' books had risen by 30%,.
Taylor Wimpey warns of tough times ahead
Another indication of the state of the UK housing market came from the country's leading homebuilder, Taylor Wimpey (TW), which announced yesterday that its UK order book was down 19% at the end of 2007 compared to 2006. The group, which also operates in the even more vulnerable US and Spanish property markets, was Tuesday's biggest FTSE 100 faller.
Chief Executive Pete Redfern warned that the spring selling season would also be subdued, and said that a recovery would depend on cuts in interest rates and the behaviour of the mortgage banks.'
But will the Bank of England provide the market with the interest rate cut it so desperately wants? As we've already written this week, the inflation outlook at present remains confusing, with householders' expenses expected to rise whilst faltering retailers may soon be forced to pass on rising costs to the consumer. And monetary policy, though some may forget it at times, is about keeping inflation under control, not propping up housing bubbles.
In fact, even rate cuts are no longer enough to save the housing market. As Capital Economics point out today, market conditions are the loosest they've been since August 2005'. So how much will prices fall? Regular MoneyWeek contributor James Ferguson suggested in a recent cover story that it could be as much as 40%. You can read more from him here: Here comes the house price crash
