It seems that it is impossible, however, to talk about the market as a single entity: some areas are doing well, some are stagnating and some are falling — but that is generally the case at any given time. There will always be a market for nice, neutral, well-kept homes in decent areas that conform to the good school/shops/transport axis, regardless of what is happening in the wider economic picture, while manky flats above a takeaway will always be hard to sell — but the problem seems to be that people have short memories.
We believe that because our house was “worth” X last year (based on what so-and-so down the road had their house on the market for), then it ought to be “worth” X plus a bit more now, working on the principle that, “well, house prices always go up every year, don’t they?” While that is not something you would want to bank your entire mortgage, pension and savings plan on — and last year’s 20 per cent rise in house price inflation was a spike, and an unsustainable one at that — it is generally the case. Still, the present low single-digit upward trend is much more in line with the historical growth rate.
Bricks and Mortar has asked some of the industry’s top commentators what they are seeing on the ground and in what direction they think movement — if any — will occur. Let us know what you think.
Martin Ellis, Halifax chief economist
The housing market has shown signs of improvement recently. Prices increased by 1.8 per cent in the third quarter, marking the biggest quarterly rise since the third quarter of 2004. Activity has also picked up, with the number of mortgage approvals funding house purchase 15 per cent higher than a year ago, and estate agents are reporting higher sales and buyer interest. Healthy household income growth and high employment are supporting the market, and the Bank of England’s August interest rate cut also appears to have given the market a boost. Despite the recent pick-up, we should remember that the annual rate of house price inflation, at 3 per cent, is significantly below the 20 per cent-plus rate of a year ago. In addition, the slowdown in economic growth this year and the continuing high level of house prices in relation to earnings are likely to prevent a sustained surge in house prices and activity.
Peter Bolton King, chief executive of the National Association of Estate Agents
Clear evidence from our latest housing market survey shows that things are definitely picking up, with the number of buyers, properties available and home sales on the increase. As we predicted, this has led to a soft landing, rather than a crash, and I expect the housing market to remain stable in 2006. Buyers should therefore not assume that by waiting to purchase property they will pick up a bargain. This is supported by the fact that levels of unemployment have been decreasing since 2003 and inflation levels have remained broadly the same. Pessimists should remember that interest rates at present sit at two thirds below the level at which the housing market crashed in the late 1980s. UK house prices won’t surge as we have seen in previous years, but prices have levelled out and I anticipate property values to show small but steady increases going forward.
Ed Stansfield, Capital Economics
The housing market data, especially on prices, present a pretty confused picture. But beneath the national headline figures the data show that prices are slowly falling in the central and southern regions of the country at least. Recent reports that sales have begun to recover suggest that the market has begun to unlock after a prolonged period in which the gap between sellers’ and buyers’ expectations has hampered turnover. Clear evidence of a significant upturn in new buyer numbers is hard to find and in any case seems at odds with the generally weak news from the wider economy. It’s still too early to call the end of the housing market slowdown.
David Pretty, Barratt Group chief executive
The market has certainly been challenging in the past year and is probably tougher than many expected. The market is steady now, although it remains competitive. But there is still business to be done, particularly for those housebuilders who, like us, have a wide geographic spread and product range, together with a high percentage of brownfield development and social housing. The medium and long-term fundamentals of the housing market are sound. The elusive element at the moment is buyer confidence, which will gradually return on the back of modest price rises over the next year or two, which in turn will improve affordability and encourage those buyers who are sitting on the fence to come back into the market. In short, the market is challenging, but the gloom is overdone. It is steady, competitive and continuing on its adjustment process from the overheated state of two years ago to normal conditions. The next year or so is likely to remain competitive, but we can certainly do business in this market.
Ian Springett, chief executive of the property website Primelocation
Much has been made of the behaviour of “average” property prices, but this masks what is really happening within the different sectors. While uncertainty has dogged the mainstream market, in the prime markets there has been confidence — though this does not necessarily mean it has always been well placed. In prime London, prices are at a record high and show no sign of going into reverse, as there remains a lack of quality housing. Prices have waned somewhat in the past year outside the capital, but the real story is the amount of stock that has come on to the market — 50 per cent higher than a year ago and still rising. It’s this sector that needs a reality check on prices, and it’s likely that there will be a noticeable correction in the coming months.
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Milan Khatri, RICS chief economist
The housing market is beginning gradually to pull out of the slowdown that became apparent in mid-2004. House prices have been slipping back in the past year, but chartered surveyors have reported that the extent of the decline has slowed. While there have been disagreements over the exact direction of house prices over the past 12 months, it is now clear that housing activity and demand are picking up. Chartered surveyors have seen a re-emergence of buyers in the market over the summer months, which has become more prominent after the August interest-rate cut. This is backed by figures from the Bank of England showing that the number of mortgages approved for house purchases hit a 14-month high in August and are now back above the average recorded in the past decade. The lack of a large housing market correction may be disappointing for would-be first-time buyers who still find prices too high. However, the relative stability of the market compared with the early 1990s is not surprising in view of the economy’s continued growth at a modest pace and employment levels that are still rising to record highs. Unless the economy were to be hit by a significant shock, or interest rates were to rise sharply, the prospect for the housing market over the next year is for stable activity and a return to more modest price rises.
Liam Bailey, head of Knight Frank Residential Research
A quick internet search reveals that since at least 1999 somebody somewhere has been predicting a fall in house prices in the UK of 20-30 per cent; at some point they may well be proved correct, as long as they keep repeating their message for long enough! The reality, however, is that the UK has experienced a noticeable market slowdown, which began in mid-2004; transaction volumes declined and prices fell back, especially in the South. We believe that this steady slowdown will lead to almost zero price growth of, say under -2 per cent to +3 per cent this year and next; by 2007 we expect to see growth in line with the historic average of 4 to 6 per cent a year (RPI plus a bit). The main threats to this rather positive scenario are either that higher inflation will lead to higher interest rates, or that the present upward trend in unemployment levels gathers pace.
Linda Beaney, Beaney Pearce estate agents
Prime residential property in the best locations of Central London is often at the forefront of trends and is also capable of bucking them too. The present strength of the London market, which has prevailed for the whole of this year (with the exception of a brief hesitation early in September), is entirely contrary to the reports emanating from many other parts of the country and even the London suburbs. While at the beginning of the year sales volumes were not high they, too, have returned steadily, and prices in general are increasing by about 5 to 6 per cent a year. The letting market is also extremely active, especially for well-located properties close to transport and in good order. It is not often that both sectors are simultaneously strong, but they are now.
