It's official.
UK house prices have gone virtually nowhere over the past two years. According to the Nationwide, over the course of 2012, prices fell by 1%. That follows the 1% rise seen in 2011.
In December 2010, the average house price was £162,249. Last month, it was £162,262.
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Of course, that national average conceals some big regional variations, as we'll see below. All the same, overall, the UK property market has probably been one of the least exciting asset classes of the past couple of years.
But will that continue in 2013?
Prices up in the south-east down everywhere else
The trouble with looking at house price indices these days is that there's such a wide disparity between areas of the country that the average doesn't tell you that much. It doesn't help that sales are so few and far between, which makes the data even lumpier.
But you have to work with what you've got. According to Nationwide's data, only two regions in Britain saw price rises last year: London (up 0.7%) and the south-west (up 0.2%). Within England, most other areas were flat or a little lower.
Prices in Wales and Scotland fell by around 3%. Northern Ireland (which is a special case because it's affected by the Irish housing boom and bust too), prices were down 8.2%.
If you dig even deeper, data from the Halifax suggests that the area that saw the biggest increase last year was Southend-on-Sea. Prices there rose by nearly 15% last year. Other London commuter towns such as Rochester and Dartford also saw big gains. Meanwhile, almost all of the worst-hit towns were in Scotland or northern England.
The message from this is pretty clear. The employment situation might be pretty healthy in the south-east, but anyone who wants to buy is being pushed ever further out of London to find a house they can still afford. The likes of Southend and Rochester are at the cheaper end of the commuter belt. They're still just about affordable and with a bearable journey to London, but not as salubrious or convenient as the likes of Sevenoaks.
Meanwhile, outside the south-east, where the worst of the recession has been felt so far, prices just keep drifting lower. Can we expect any change to this pattern this year?
Life is going to get harder for potential buyers in 2013
As my colleague Merryn Somerset Webb noted in the last issue of MoneyWeek magazine, most pundits think prices will be flat to slightly higher next year.
You can see why. The government and the Bank of England are doing their very best to keep prices propped up. Interest rates remain extremely low. And the Funding for Lending scheme actively encourages banks to borrow cheap money to lend back out to homebuyers.
(This comes at the expense of savers, of course. If banks can get cheap money from the Bank of England, there isn't as much pressure on them to raise money from the likes of you and me).
But how much more propping up can the government do? The trouble with Funding for Lending is that it is making home loans cheaper for people who can already afford to buy. So on that score, it's not making a huge difference to overall demand.
As Matthew Pointon of Capital Economics points out, there are lots of people renting properties just now who would like to be able to buy. But the size of the deposit required is making it nigh-on impossible for them to do so.
Pointon notes that a 20% deposit on a typical first-time buyer property priced at £140,000 (according to Nationwide), comes in at £28,000. To save that within five years, assuming an interest rate of 2.5%, you'd need to put away £450 a month. That's a staggering amount to save for most people, even those with double incomes and no children.
And as Pointon says, very few are saving anything like that much. In fact, even if the average deposit fell to 10%, only around one inten renters is saving enough to be able to buy a house in five years' time.
It'll get even harder. Wages are still rising more slowly than inflation. And the Bank of England seems intent on finding more excuses to ignore inflation this year. There's lots of talk of nominal GDP' targeting floating around (which is essentially an excuse to allow inflation to rise above the current 2% target rate).
That means people will have even less disposable income available as each year passes. That makes saving enough for a deposit even more difficult. So it seems safe to say that life will get even harder for first-time buyers this year.
Who's left? There are all those wealthy foreigners, of course. But foreign money can be very fickle. If the eurozone crisis eases, or even comes to an end (even if it's a bad one), a lot of that money will start looking for opportunities elsewhere. You've also got the pick-up in the US housing market to attract buyers.
Meanwhile, the government is raising taxes on the most expensive properties, something that looks likely to continue.
In other words, conditions are becoming steadily less favourable for most potential buyers in the UK property market, at a time when interest rates can't really go any lower. As Merryn noted, given the extent of government intervention in the market, it's hard to say for sure what will happen next. But we certainly wouldn't be rushing out to invest in buy-to-let property not even in Southend.
You can read more about what our experts think about the outlook for the UK market in our most recent property Roundtable, from early December. If you're not already a subscriber, subscribe to MoneyWeek magazine.
This article is taken from the free investment email Money Morning. Sign up to Money Morning here .
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