So much for the great house price recovery. Nationwide numbers just out tell us that prices fell another tiny bit in December. That means they ended 2010 down just over 1%, and that they are still 13% off their 2007 highs. Add in inflation and it is more like 20%.
You could say that this very big number suggests the fall is all but over. I suspect it is not. The house-price-to-income multiple is still way above its historical averages: it's long-run level is somewhere between three and four times and it is now something between five and seven times depending on what data you use. That is slowly changing, for the simple reason that real wages are falling less fast than real house prices (around 3% versus 5% last year). But a shift of 2% a year isn't going to get us to fair value in a hurry.
However, the real reason we should expect house prices to keep falling in both nominal and real terms is, as ever, simply down to supply and demand. Supply isn't unusually high at the moment. This might change when interest rates rise and the market floods with forced sellers. But that hasn't happened yet.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
However, demand is unusually low and set to stay that way. In December, the Bank of England reported mortgage approvals for house purchase down 10% to 42,563 from November's 47,287. This compares with 58,807 approvals a year ago and a peak of 129,168 in November 2006.
This is likely to continue, largely because the banks, despite talking a good talk and appearing to offer many new deals, are lending out as little as possible. As Michelle from Moneyfacts.co.uk points out, the UK mortgage market is a bit "see but don't touch". Lenders' windows are jam-packed with best-buy deals, but that doesn't mean they are actually "wanting to lend" to you.
Instead, they are pulling good deals as soon as they get too popular and citing all sorts of affordability criteria in their efforts to excuse themselves from transactions: note the news that lenders are now frequently agreeing to lend less topeople with children than to those without. (Personally, I think they've got this the wrong way round. I'd be more likely to lend to lend to people who do have children and have already adjusted to it than to a childless double-income couple who plan them but have no idea how much they will cost and no idea that they are more likely than not going to end up living on one income).
Either way, you get the point: given the reluctance on the part of the banks to expand into the market, it's no wonder that net mortgage lending growth is almost non-existent and mortgage approvals are in freefall. None of this bodes well. If you look at our chart here you will see that, in general, mortgage approval numbers lead the index by four months or so. If this pattern holds, then they'll be leading house prices down, down, and down again.
That may even be the case at the top end of the market, which in many cases has been relatively well insulated so far: findaproperty.com claims that over the last month, the bigger a house, the faster it is losing value. Five-bedroom houses have, says the site's data, fallen by 2.4% in the last four weeks. We should expect that fall to pick up speed as the new 5% rate of stamp duty comes in on houses priced at over £1m in April.
-
British Airways revamps Avios scheme bringing down flight prices to £1With the new Avios part-payments scheme you can now bag a British Airways flight for as little as £1
-
RBS to close a fifth of branchesRoyal Bank of Scotland plans to shut 18 branches across Scotland, resulting in the loss of 105 jobs. We have the full list of closures.
-
House prices to crash? Your house may still be making you money, but not for much longerOpinion If you’re relying on your property to fund your pension, you may have to think again. But, says Merryn Somerset Webb, if house prices start to fall there may be a silver lining.
-
Prepare your portfolio for recessionOpinion A recession is looking increasingly likely. Add in a bear market and soaring inflation, and things are going to get very complicated for investors, says Merryn Somerset Webb.
-
Investing for income? Here are six investment trusts to buy nowOpinion For many savers and investors, income is getting hard to find. But it's not impossible to find, says Merryn Somerset Webb. Here, she picks six investment trusts that are currently yielding more than 4%.
-
Stories are great – but investors should stick to realityOpinion Everybody loves a story – and investors are no exception. But it’s easy to get carried away, says Merryn Somerset Webb, and forget the underlying truth of the market.
-
Everything is collapsing at once – here’s what to do about itOpinion Equity and bond markets are crashing, while inflation destroys the value of cash. Merryn Somerset Webb looks at where investors can turn to protect their wealth.
-
Value is starting to emerge in the marketsOpinion If you are looking for long-term value in the markets, some is beginning to emerge, says Merryn Somerset Webb. Indeed, you may soon be able to buy traditionally expensive growth stocks on the cheap, too.
-
ESG investing could end up being a classic mistakeOpinion ESG investing has been embraced with enormous speed and zeal. But think long and hard before buying in, says Merryn Somerset Webb.
-
UK house prices will fall – but not for a few yearsOpinion UK house prices look out of reach for many. But the truth is that British property is surprisingly affordable, says Merryn Somerset Webb. Prices will fall at some point – but not yet.
