If there are any die-hard bulls left in the UK's housing market, the latest Rightmove report [pdf] on prices will surely have given even them pause for thought.
According to the website's data, asking prices across the UK are 4.8% lower this August than they were last August, with London suffering the worst falls. Asking prices in the capital fell 5.3%, equivalent to a £21,000 drop in just one month. That doesn't suggest much in the way of good news for transaction prices: this time last year, bidding wars meant that buyers usually ended up paying well over the asking price; this year they are paying considerably less.
This miserable news for sellers at least - comes fast on the back of depressing figures from the Ministry of Justice on Friday,which showed that the number of repossession orders on UK homes has climbed to a 15-month high. 28,658 repossession orders were make in the courts of England and Wales in the second quarter of 2008. That's a 24% rise on the same period in 2007 and "not far off the highs reached during the 1990's housing market crash", says Capital Economics.
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So just how much will house prices in the UK really fall from here? And when should you start buying again?
For the beginning of the answer to the first question, look at the number of unsold properties on estate agents' books. According to Rightmove, the average estate agent now has a record 78 unsold properties on its books. That represents a seventh consecutive monthly increase in the amount of unsold stock. And if sellers can't sell they are going to have to cut those asking prices a lot further than they have already. Buyers know this perfectly well and that's why they aren't buying: why buy now what you know you can buy cheaper next year?
So prices are destined to fall further, the only question is: by how far? At MoneyWeek's latest roundtable discussion, James Ferguson, an economist at Pali International and author of MoneyWeek's weekly Model Investor email, suggests house prices are likely to drop by 50%. And even that will only bring them back to fair value. James is often considered to have pretty extreme views on the housing market, but at our roundtable this month no one was arguing with him. Some of the other participants even pointed out that with the kind of overshoot you get in most markets, 50% could be optimistic. And how long will all this take? Based on the speed prices are falling, says James, it'll be a while before the official statistics show the market has bottomed but some sellers will always be more desperate than others. Give it 18 months to two years "and you'll find some serious bargains about."
However just because you might be able to buy a bargain doesn't mean you're going to make a killing on it in a hurry. Given the problems that lenders have in expanding their loan books, your average buyer will still be having problems securing the money to buy a house. And that will make it very hard for prices - even when they do hit bottom - to rise again: as we keep pointing out, house prices are a function of little more than the supply of and demand for credit. So by all means look for a bargain in a year or two but don't expect to be able to sell it on at a profit for a good five years.
