Merryn's Blog

UK house prices heading for a double dip

No matter what estate agents may say, the latest figures for the UK housing market show we're entering the second leg of the housing downturn.

Anyone looking for good news on the UK property market certainly didn't get it this week. First came the Halifax numbers showing that prices across the country fell 0.6% in June. Then, a few minutes later, up popped the numbers from Acadametrics. They showed much the same thing prices down 0.5% in June.

Still, despite these falls, both press releases managed to put a positive-ish spin on things. The Halifax pointed out that the bad June numbers "continued the slowdown in house price growth since the beginning of the year following the moderate recovery in prices during much of 2009". But this was still in line with their view that "house prices will be broadly unchanged over 2010 as a whole".

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Acadametrics agreed, suggesting that while they can't "discount further house price falls over the next few months" there is nonetheless "an army of over one million would-be first-time buyers delaying purchases, who are ready to enter the market when conditions allow". This, they say, "suggests the current drop in house prices may well be short lived".

Other commentators went for even more optimistic interpretations: the falls, said Stuart Law of property company Assetz, "should not be read as prices reversing". Hmmmm.

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It seems to us that however you look at the numbers, you can't help but read them as saying that prices are reversing. Graham Turner of GFC Economics points out that if you look at a rolling six-month average of the Halifax numbers, prices are well into negative territory: the number has fallen from a recent peak of over 14% to -3%.

Not all the indices are showing such a dramatic downturn. But it is worth noting that in the recent past, the Halifax numbers have been a better leading indicator than others when prices have been turning down. So a fall of 3% on the Halifax numbers, says Turner, represents a "major reversal" and should make it clear to most people at least that the UK housing market is "entering a second downturn".

"Strong foreign interest and a revival of financial sector bonuses may have given some impetus to house prices in London and much of the South East. But for the rest of the country a 16% drop in mortgage approvals in the six months to May would appear to be taking its toll."

That may change of course. But it is hard to see how. We know that the public sector is in trouble, we know that the private sector isn't exactly in clover either, and we know that mortgages are going to continue to be thin on the ground, thanks to the ongoing difficulty our banks are having rebuilding their balance sheets and refinancing.

There may well be, as Academetrics suggests, an army of would-be first-time buyers out there, keen to get into the market when "conditions allow". But conditions don't and won't allow. Back at the peak of the bubble in 2007 nearly 50% of the mortgages approved were self-cert mortgages ('liar loans' or 'tax-evader loans', depending on how you look at it).

Those don't exist any more. Nor do 100% loans, 110% loans, or, except on paper, much in the way of 90% loans. And with house prices on the way back down and the Bank of England on the verge of withdrawing its massive support from the mortgage market, that is highly unlikely to change. One day this house price bubble really will burst.

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