Spring weather may have arrived, but cold winds continue to blow through the housing market. Mortgage brokers are finding there is no longer much for them to broker and are feeling the pinch.

In fact, anybody connected with new homes is struggling — which means the builders themselves and their employees, the self-employed tradesmen they use and those whose job it is to market housing developments to potential buyers. Estate agents are closing offices and shedding staff.

The common concern is that all these people depend on volume, and volume is sharply down. Mortgage approvals are running 40%-50% lower than a year ago, and every other housing activity measure is weaker than it has been for years. This matters to those involved in the industry rather more than prices. Most estate agents would be quite happy to see prices a lot lower, provided it meant the amount of property that changes hands returned to something like normal.

So, how serious is the downturn in activity? All roads appear to lead back to the early 1990s. Richard Donnell, of Hometrack, thinks that some activity measures, such as housing starts, will drop below the low point seen during that recession. Transactions have in any case been significantly lower in recent years than they were then, reaching only two-thirds of their peak in the late 1980s — which means the downturn has started from a lower base.

This is both good and bad news. Goldman Sachs, in a research note, says that 2008 “is not 1990”. The boom has not been as powerful as then, it reports. Houses are less overpriced and the number of households at risk of negative equity is much smaller, because far fewer people have bought at or near the top.

It is no cheerleader for the housing market. Ben Broadbent, its UK economist, expects a 15% fall in prices from peak to trough. But, whereas in the early 1990s a fall of this magnitude pushed 7% of households into negative equity, a similar fall now, were it to occur, would affect only 2% in that way.

“Fewer people bought at the peak — turnover was much lower last year than in 1989 and, as far as we can tell, a smaller fraction of buyers have been very highly geared,” writes Broadbent. “The share of high loan-to-value lending has been much lower.”

The key is whether lending can recover before confidence is so shot that even when mortgages are more readily available, people will not want to take them up. Goldman Sachs’s analysis shows that this is not a mortgage-rate “shock” — contrary to what you have read in the headlines, average rates have actually dropped so far this year, though not as fast as the Bank of England’s base rate. Goldman Sachs’s note suggests that the Bank rate will be down to 4% by the end of the year.

We are, however, experiencing a rationing shock. Everybody involved in housing will be hoping that the market comes off iron rations soon.

home.economics@sunday-times.co.uk

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