HOW will house prices perform in 2008? It is an all-engrossing subject on
which everyone is queuing up to give an opinion, with one of the latest
views coming from HSBC.
Karen Ward, the bank’s economist, notes that “there is around 30 per cent of
the current house price level that cannot be explained”, although,
carefully, she does not predict that there will be a fall of this magnitude.
The bubble is about to burst, but the extent of the shock that this could
cause cannot be predicted.
Hedge fund managers have also been applying their big brains to the prospects
for real estate and have become rather more gloomy: an index of their trades
in property derivatives indicates that, just a month ago, they were
speculating that the market would fall by just 2 per cent. They are now
expecting a 7 per cent decline.
However, as Fionnuala Earley, Nationwide’s chief economist, points out, there
have not been “any really significant changes in the underlying
housing market conditions during the period.” Indeed, the recent indication
from the Bank of England that interest rates will be cut in 2008 represents
an improvement in the overall outlook.
Ms Earley continues to believe that the market will be difficult next year but
that there will not be a recession. She highlights the continued undersupply
of homes – which should provide a support to prices. But, amid the mood of
uncertainty, there is an inclination among other commentators to concentrate
on the bad news.
The latest house prices surveys from Nationwide and the Land Registry add to
the evidence that the slowdown is already under way in most parts of the UK.
Nationwide’s statistics show annual growth of 6.9 per cent in November,
against 9.7 per cent in October.
The Land Registry – reporting on the state of affairs in October – reveals a
fall of 0.6 per cent during the month, but the annual increase in the
capital is still running at 14.7 per cent. A year ago, no-one forecast such
a stellar performance. Some homeowners may now regret that it will not be
sustained into next year. But the outcome from the continuation of this
spiral would have been much more painful than even the mostly pessmistic
commentator is currently predicting.
TIME TO REFILL THE EMPTIES
The Ninja (no income, no job, no assets) is likely to emerge as the most
frequently-used housing market acronym of 2008. It sums up a typical victim
of the US sub-prime mortgage scandal: a borrower who should never have been
sold a home loan. By contrast, the EDMO (Empty Dwelling Management Order)
and the PROD (Public Request to Order Disposal) are among the most obscure
of acronyms – which says something about the lack of focus on another
disgraceful affair, Britain’s 840,000 empty homes. This scandal bears no
comparison with the global-economy threatening sub-prime debacle, although
there is one similarity: a lack of official concern about the problem until
its consequences can no longer be ignored.
The response to Bricks and Mortar’s report last month on empty homes reveals
much anger about the role of some local authorities in the increasing number
of properties lying vacant for years. In some cases, the authority is itself
the owner of the dilapidated and vandalised home; in others, it turns a
blind eye towards the proprietor’s negligence.
Such a home is not only an eyesore and a magnet for crime; it also drags the
rest down with it. On pages 12-13 we report on Beverley Platt, whose South
London terraced house has lost up to 20 per cent of its value, thanks to the
terrible state of the boarded-up house next door. Fortunately, Lewisham, one
of the more enlightened councils, has taken out an EDMO, giving it the power
not to sell the property but to fix it up and find a tenant. A council that
stands by while empty homes in its control, or in private ownership, crumble
can be the target of a PROD. The council is compelled to take action –
although not immediately.
Bringing empty properties back into use is part of the Government’s plan for
three million new dwellings by 2020. However, we will only believe there is
a firm commitment to this strategy if EDMO and PROD are rather more familiar
terms a year from now.
HAIR TODAY, PRICES UP TOMORROW
Newly chic neighbourhoods that have won a following thanks to the unaffordable
prices in areas around them could be among the locations most vulnerable to
a slowdown. This means that there is an even greater incentive to spot the
qualities that will give a place that is up-and-coming some staying power.
The essentials include good schools, transport and restaurants and a vibrant
high street, where not every retailer is a household name.
A rising degree of affluence in the area is also a sound indicator. Grandiose
home improvement projects are one obvious way to gauge this. But some of
those who have made money from moving into now sought-after suburbs rely on
density of hairdressers. This suggests that residents have surplus income
that they are happy to spend on self-improvement. Another swears by the
spread of Pilates studios. What indicator works for you? Let us know.
I rather liked David Smith's prediction that house prices would be sticky on the way down. I predict that the stickiness will be more of a cliff but there we are...
Austin Tassletine, South West, UK
Surely its not a question of Economists trying to out do each other in gloomy predictions but rather a case of Economists actually doing their jobs and trying to be correct in their predictions.
If more economic analysis & professional attention had been paid to the property market earlier rather than property 'porn' articles and TV shows then the market would not be facing such a crisis.
You also forgot to add the 40% over inflation in the UK Market stated by the IMF and also the 50% stated by ABN Amro during the summer. It would appear that HSBC are still on the cautious side when claiming only 30%.
There is also a strong chance that the market might over compensate in its correction depending on many factors that cannot be addressed by the BoE alone.
Lowering of interest rates will probably not impact too much on the house retail market due to lenders using the chance to recoup recent losses. And also lowering of interest rates will result in Inflation going unabated.
Arthur, Penzance, UK
Instead of looking back as all property bulls would have us do, why not look ahead.........
Nationwide reported a drop of 0.8% over one month so that could easily suggest a drop of 9.6% over the next year. Add the 6.4% gain of invested cash and we are already at 16%
That's right, you could easily be 16% worse off if you buy a house now! Negative spin or realism? You take your choice.....
George, Aylesbury,
"What indicator works for you? "..I'll expect your cheque in the post for this one.
Ok,here it is are you ready...it's, it's,it's coming....
Watch two things.
First ,the increase in the numbers of properties going to auction rather than agency for sale.
The numbers of unsold lots at auctions.
I'm giving you this as a freeby as I am too old to use it anymore. Alternatively ,I've sold everything and have nothing left to lose.
This would already tell you the tops in for property broadly.
SC, Preston,
...but the annual increase in the capital is still running at 14.7 per cent. A year ago, no-one forecast such a stellar performance. ..
That is because asset price bubbles are notoriously hard to predict on the way up as well as down.
T Sparks, Limerick,