February 18th, 2009 -
The UK Housing market has proved very volatile in recent years. These articles explain some of the main features of the UK housing market and look at its prospects in future months.
March 12th, 2009 -
Long Term House Prices before the crash
More housing stats
Housing Market stats at ONS
February 16th, 2009 -
As the UK economy continues to experience a deepening recession, what would be necessary for the UK housing market to recover?
Higher willingness to lend. Interest rates are very low, so the cost of mortgages should not be a problem. Some fixed rate mortgages are going for as low as 3%. The problem is banks are still reluctant to lend mortgages because of the shortage of their cash flow. Some banks even complain that low interest rates make it difficult to attract savers and therefore have enough to lend.
Affordability. With house prices falling fast (10-15%) it means they are becoming more affordable for first time buyers. Buying a house looks more attractive than it was 18 months ago. As house prices continue to fall, it will start to tempt more people back into the housing market. Another key issue is the affordability of housing compared to renting a house.
End of Recession With unemployment forecast to rise to 3 million because of deepening recession, many people will be deterred from buying a house in current climate of uncertainty. It is hard to imagine housing market picking up with output continuing to fall and unemployment rising. Unemployment is often a lagging indicator which means unemployment could still rise when economy first starts to pick up. But, when the economy starts to pick up, this may give the confidence necessary to potential home owners.
Housing Market Recovery by 2010?
In the last housing market downturn, house prices fell for about 4 years. This means we might not see a housing recovery until 2011. However, conditions are different and it is hard to predict how long house prices will continue to fall
November 28th, 2008 -
The UK housing Market has a tendency towards being very volatile. The problem with this volatility is that it creates the potential for collapsing house prices. When house prices fall as rapidly as they are at the moment, it leads to negative equity and fall in confidence. Rather than having boom and busts in house prices, it would be better for the government to try and ensure greater stability - avoiding very rapid price increases and rapid price decreases.
The problem is that it is not easy to stabilise house prices. The record since 1980 is not good. However, one of the best policies would be to try and regulate the availability of credit. Making banks save in boom years, so when the downturn comes, banks can draw on their savings (rather than rely on government bailouts)
Yes, this involves intervening in the free market. But, the evidence of the recent boom and bust is that left to its own devices the free market creates a very unstable and volatile situation.
See: How To Avoid Boom and Bust in Housing Market
November 27th, 2008 -
The Housing Market is undergoing a painful readjustment with falling prices and exceptionally low transaction volumes.
In part this reflects the UK economy which is experiencing a steep recession and sharp rise in unemployment [See: UK Economy 2009]
There is a strong link between the housing market and UK economy. One of the main factors behind the current recession is the falling house prices. As house prices fall, consumer spending tends to decline as confidence evaporates and people can no longer re-mortgages. The recession is making the house price fall even worse, creating a negative downward spiral.
House Prices in 2009
The negative momentum in house prices will continue throughout 2009. See: predicted house price falls
Mortgage Lending in 2009
Mortgage lending is currently at an all time low. The government is trying to put pressure on banks to revitalise mortgage lending. Whether this is successful will have a big bearing on the future of the housing market
New Home Builds.
The government has a target of building 240,000 homes a year, but, the construction industry is in recession and the number of new houses coming onto the market is likely to be very low. Due to the time lags involved in building houses, this is creating a shortage of housing which will be a problem when housing market recovers.
November 26th, 2008 -
House Price Fall
This graph shows the sharp fall in house prices which have occured in the past few months. Most analysts expect further house price falls.
Mortgage lending still frozen. The number of new mortgage approvals is very low. The number of new mortgage loans is 52% lower than October 2007. (already by Oct 2007, mortgage approvals had fallen). WIth banks unwilling to lend mortgages, it is hard for potential homeowners to get into a position to buy.[Times article]
Cumulative Pessimism. The housing market is volatile and prone to speculative changes. (see why housing market is volatile) With prices falling, there is a strong incentive to delay purchasing. People are renting until the market shows signs of bottoming out. If the last housing bust is a guide, this might not be for another 2 years.
Rising Unemployment and Falling Growth. The economic slowdown has been much sharper than predicted. Mervyn King has said the economic slowdown in the UK will be very steep. With rising unemployment, repossession rise causing more houses to be put on market.
November 21st, 2008 -
House prices continue to fall. Home repossessions continue to rise. Banks are unwilling to lend mortgages and many homeowners are seeing negative equity. In the short term, the housing market is suffering from falling house prices and a great difficulty to get any houses sold.
The current housing difficulties have meant that the government’s target for building new homes has fallen well short.
In the 3 months to September new housing starts fell 33% on seasonally adjusted figures. Compared to last year they have fallen by 50%. It is the lowest level since 1980. It means the UK will struggle to build 100,000 homes in 2008 - well short of the government’s target of 240,000.
2009, is unlikely to see any upswing in the homebuilding market. As the UK population continues to grow it is causing the likelyhood of future chronic shortages in new homes.
November 11th, 2008 -
Some features of the UK Housing Market and why the UK often experiences Housing market failure.
1. Volatility. The UK Housing Market is characterised by boom and busts. There is a cycle of rapidly rising house prices followed by a sharp crash. This volatility in house prices creates problems for the real economy. When prices rise rapidly it causes a rise in consumer confidence, equity withdrawal and inflationary pressure. In the boom of the 1980s, the rise in house prices was a key factor in the inflationary growth which resulted in the boom and bust of 1991. Volatile House prices also create problems for homeowners, especially for those who buy near the peak and then face several years of negative equity.
Why Are House prices so Volatile?
- Supply is inelastic. Supply is unresponsive to rising prices because it takes a long time to gain planning permission to build new houses. Demographic trends mean demand for housing has risen at a faster rate than the supply of housing.
- Confidence Factor. When prices are rising, people are keen to make capital gains. When prices are rising, lenders are willing to loosen criteria and lender larger mortgages with small deposits, because rising prices effectively creates a deposit. Therefore rising prices encourage more to come onto the property ladder. Any change in the confidence of the housing market is exaggerated by the media who often make house prices front page news.
- When prices start to fall, the opposite occur. Lenders become nervous over negative equity so require large deposits. Consumers don’t want to buy when prices are falling. Therefore, a small fall in price becomes a large fall in price.
2. Sensitive To Interest Rates.
Despite the hopes of the government, UK Homeowners are still reluctant to take out long term fixed rate mortgages of 5, 10 or 20 year rates. This means many homeowners have variable mortgages or 2 year fixed rates. Therefore, fluctuations in the interest rates cause a significant change in demand and affordability. This is another reason why UK house prices are volatile.
(It would also create a problem if UK joined Euro and had a common monetary policy where interest rates may not be suitable.)
3. Shortage of Supply
The UK population is rising and is forecast to rise. Also demographic changes mean there are more single people because of:
- higher divorce rates
- more old people
- people leaving home early
- getting married later.
Yet, despite the predicted rise in population, the government frequently fails to meet its own targets for building new houses. The reason is that local councils and local communities often vigourously fight any new housing developments. There is a strong attachment to protecting the environment and reducing congestion (and perhaps an unconscious desire to protect value of house prices in the area) The long term shortage of supply creates a climate where rapidly rising house prices can occur with a small rise in demand.
November 3rd, 2008 -
Recent figures suggest annual house prices in the UK have slumped by 15%. However, these statistics may underestimate the true level of house prices.
The low volume of house price sales is indicative of the fact many homeowners are reluctant to cut prices to more realistic levels. Therefore, asking prices are inaccurate guide to the value buyers are putting on house prices. Many homeonwners are finding that only significant discounts from the asking price are helping to sell houses.
The deteriorating economic outlook means that interest rates are likely to fall in the near future. The question is how much rates will fall. Many are hoping for large cuts of 100 basis points. See: Outlook for interest rate cuts
When will the House price slump end?
With the economy experiencing a serious recession and banks still reluctant to lend mortgages, the fundamentals of the housing market point to further falls in house prices. Despite government attempts to help the housing market, it remains powerless to prevent house price falls. - Why government can’t prevent house price falls
Measures to help housing market at BBC
October 10th, 2008 -
The Global financial crisis continues to worsen the state of the UK Housing Market.
Shortage of credit, means that lending criteria remain very strict as banks are reluctant to lend any mortgages. The contraction in mortgage lending and fall in consumer confidence has caused a big fall in demand for houses. THe Halifax reports that house prices are now falling at their fastest rate for 25 years.
Finance Crisis Explained
