House-price growth slowed again last month, according to the latest figures from Nationwide.
The building society reports that house prices fell by 0.2% during the month of May, while the annual growth rate slipped to 2.4% from 2.6% in April.
Given that the consumer price index (CPI), the Bank of England's key inflation measure, is also 2.4%, that means that house prices are flat in "real" (after-inflation) terms.
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Overall, this is the ideal. (I'll explain why below).
The question is though, will it stay like this or are there bigger falls on the way?
Why we need UK property to lose its appeal as an investment
Despite the legislative kicking that buy-to-let has had in recent years, and continuing evidence of a sharp slowdown in the UK housing market, the idea of property as a decent investment is dying hard. Yet there are signs that it no longer has the same hold on the imagination as it once did.
Here's a little anecdote to illutrate the point: last month, private bank Weatherbys held an event for their clients, at which they very kindly asked a question on the behalf of MoneyWeek.
It's a question Merryn often asks when she's interviewing a fund manager or other investment celebrity: "If you had to lock up your money in one asset for ten years, and you couldn't touch it during that time, what would you invest in?"
It's an interesting question it's distant enough that you have to consider your views on the long run and on how much risk you're willing to take, but it's not so far out that you can simply opt for "reliable" stores of value.
After all, the history of the last century or so suggests that British or American stocks will mostly deliver satisfactory returns once you've held them for 20 years, but a decade-long holding period is not such a sure thing.
Anyway, we gave a series of options bitcoin; a portfolio of developed-market stocks; emerging-market stocks; US dollars; physical gold; developed-market government bonds; emerging-market government bonds; or a property in prime central London. The audience members then voted for their preferred option.
Hardly anyone opted for bitcoin (3%) or US dollars (2%). Government bonds of either stripe also won very few votes (3% developed; 4% emerging). Interestingly, almost the same proportion of people (13%) voted for gold as voted for developed market stocks (12%).
In the end, the victor surprised me it was emerging-market stocks, with a whopping 40% of the vote. I was quite impressed by this, although it may reflect a strong "risk-on" mentality it would be interesting to see what the outcome was today, for example.
Prime central London property did manage to come in second, on 25%. This shows the enduring appeal of the idea that "you can't go wrong with bricks and mortar". Of all areas of the UK housing market, prime central London has probably been hit hardest. Depending on who you ask, prices in London's poshest postcodes are now back to 2013 levels. Yet despite that, it's still seen as a good place to put your money.
However, I reckon that five years ago prime central London property would have won outright (that's a guess, but I don't think it's a bad one). The massive increases in stamp duty on that end of the market has had a huge impact there.
But today, it seems clear that the main driving force behind the wider slowdown in the UK property market is the fall from grace of the amateur landlord.
Why speculative landlords leaving the market is good news
This could be good news not for landlords, maybe, but for the wider economy.
As we've said on many occasions, you want house prices to stay roughly where they are or to head gently lower in "nominal" terms. But you want them to fall in "real" terms in other words, get cheaper relative to inflation.
That way, you don't bankrupt your banking sector (which has loaned lots of money against property), or get consumers in too much of a panic (British households seem to based their view of the economy on what's going on with the price of their own house). But at the same time, house prices become more affordable and mortgages assuming they are fixed rate, which most are now become less onerous in real terms.
For a gentle slowdown, rather than a crash, you need a number of things to happen. For one, you need mortgage lending to be steady rather than rampant (boom), or collapsing (bust). That seems to be the case. The Bank of England is tightly monitoring that side of things, so while money remains cheap, it's not always easily available.
You also need to avoid a big jump in unemployment. Forced selling on a wide-scale basis is most likely to happen if unemployment soars. So far, that seems unlikely too.
Finally, buying property as an investment needs to look less appealing. In 1997 when property was still recovering from the 1990s crash private landlords owned 10% of Britain's housing stock, reports Nationwide. By 2017, that had risen to 20%.
Regardless of whether you think that's a good, bad or indifferent thing, there is no doubt that it has had an effect on property prices. If you suddenly introduce a whole new class of buyer into a market, then you're going to not only boost demand, but you're going to change the nature of the market too.
Want to know why Britain is so inundated with "luxury flats"? That's down to builders meeting demand from landlords (as Nationwide notes, roughly 60% of flats are privately rented, compared to the average of 18% for other property types).
But now, demand from landlords is collapsing as tax changes make the whole thing far less attractive. The Association of Residential Letting Agents just reported that the number of landlords selling their properties rose sharply in April. And in the longer run, what we'll be left with is landlords who know what they're doing, rather than crossing their fingers and taking a punt on a combination of massive leverage and constantly falling interest rates.
If we can get back to a situation where properties are viewed by most people as places to dwell, rather than as potential lottery tickets, then not only will we take some heat out of the market, but the sense of inequality will diminish as home ownership starts to rise again. Combine that with a pick up in wages (which seems to be happening), and an undeniable increase in physical housebuilding, and we might just get to the point where the market is at something close to sensible valuations again (relative to income), without causing a catastrophic economic collapse.
