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Thursday, 19 December, 2002, 13:46 GMT
Housing market 'cooling down'
The overheating housing market is finally showing signs of cooling down.
Figures from a building society, a house builder and chartered surveyors all suggest that runaway house price inflation is coming to an end.
But the cost of a home is still expected to rise in 2003.
And there is disagreement about whether there will eventually be a crash or a more gentle slowdown.
The Nationwide said it expected house prices to rise by 10% next year.
But it warned that if consumer confidence remained strong, prices could rise by 20-25%, making it far more likely that prices would fall in subsequent years.
The Royal Institution of Chartered Surveyors (RICS) found that house price inflation had slowed in November for the third month in a row.
But its report revealed growing evidence of a two-speed housing market with price rises slowing in the South East and London but still booming in northeast and northwest England, Yorkshire/Humberside and the West Midlands.
Slowdown not crash
Even where inflation is slowing, there is still a danger of a housing crash, according to research from Barclays Private Clients.
It found that property prices were now more than 10 times higher than local earnings in 24 boroughs across England and Wales.
RICS national housing spokesman, Ian Perry, said: "There is a lot of speculation at the moment that the housing market is set to crash.
"We believe that a slowdown in house price inflation is more likely."
The house builder Persimmon said that prices for new homes had gradually been slowing over the past few months.
"We are not expecting to fall off a cliff," said chief executive John White.
But the British Bankers' Association said mortgage lending had risen rose by £5.9bn in November, its highest monthly rise to date.
It said lending had been boosted by people taking advantage of soaring house prices to release money from their homes.
The Council of Mortgage Lenders said total mortgage lending by banks and building societies was £20.5bn, only slightly lower than October's figure of £21bn.
"Mortgage borrowing is not slowing," said Adrian Coles, director-general of the Building Societies' Association.
He told BBC Radio 4's Today programme that the beginning of 2003 would be strong because an extremely high number of mortgages had already been agreed.
He said that lenders were being responsible and there were only one or two cases where loans amounted to five or six times income levels.
"Mortgage lenders do not want to over-lend to people, and it's not in their interests to do it," he added.
Have you been affected by the market cooling down, either directly or indirectly because of a chain? Or, are you still living in a hot spot?
I was planning to move shortly but now, having become aware of a slowdown, I shall wait for the market to flatten out. If other people are of like mind, it will not be a gentle slowdown in house price inflation but a mighty slamming on of the brakes. The sooner the better!
I have a portfolio of properties in East London. House prices show little signs of slowing down. The only thing slowing down, is the number of properties on the market. I strongly believe this is scare mongering... those with patience will see that in the next quarter, there will be a bigger and faster rise!!!! Hold on to your seats.
Simply put, there will be no price rise in real terms next year. Rather than offer 5% less than the asking price any buyers will offer 10% less. Houses are expensive and joe-public led by the press are starting to realise that. Hold tight and wait for the 20% fall next year..
I bought a brand new 2 bed property in Feb 2001, by Christmas 2001 it had risen 15%. I waited. Seeing colleagues being made redundant made me edgy, and 6 months later my house was worth a whopping 40% more. I sold in Sept 2002, I could have had more, but I decided to repay debts. I am now renting, I always felt that the market would slow in 2003 that¿s why I sold, I mean just look at the economy! Its a falsehood for prices to keep rising in areas where peoples jobs are being shed by the truck load! Anyway, I'm happy, waiting for the crash, then I¿ll buy again!
For several years my wife and I have been watching house prices soar to ridiculous levels throughout the South East. At the moment we would have to stretch to afford a one bedroom flat! The sooner the housing market gets back to 'real' prices where normal people can afford housing the better.
I think a slowdown is more likely than a crash at the moment, but the longer the slowdown takes to materialise, the more likely a crash will become as house prices get too far ahead of earnings growth. Inflation figures for the next couple of months will be key. Inflation rose by 0.5% last month and another rise like that this month will see the Bank of England putting the breaks on firmly to avoid the 3.5% level being breached. The fundamentals in the economy are still good, high employment levels, low inflation and low interest rates, but one of these figures will have to change soon. These three figures cannot remain good for long. Either the economy will speed up increasing inflation and therefore interest rates, or it will slow, increasing unemployment. Either of these scenarios will affect the housing market, by reducing people's ability to afford that new home. Things are delicately poised. Thank goodness I bought my house 2 and a half years ago!!
It may not have dawned on many people but some good can come out of a house price crash:
(1) prices become more affordable for first-time buyers. (2) people on the ladder can afford to move up the ladder as the gap between their current property and their desired property narrows.
Unfortunately, someone has to lose out and it is those who have recently bought at or near 100% mortgage levels that are hit the hardest.
I feel the brakes should have been put on housing prices a long time ago. I live in Warwickshire in the Midlands, am 28 yrs old and still have to live with parents as I simply cannot afford to purchase a property on my own. The amount I could borrow for a mortgage is 48k - having done an internet search, there is NOT ONE property in the whole of Warwickshire in this price range. I don't earn a bad wage for the area I live in, but feel salaries for Warwickshire are no way in line with property prices. I have a group of female mates, all in their late twenties, all in the same position - why should we have to rely on a partner just to get on the property ladder ? ! The new government figures for pension recommendations put the icing on the cake - for my generation, I think it will either be live with your parents, run a car and have a pension - OR - buy a property, don't have a pension and not be able to run a car or feed and clothe yourself. I think I'm best off at home ! for foreseeable future ! Emily, Leamington Spa
I am thirty and I rent a flat. I earn £14,000 a year and I am losing sight of the hope of ever owning my own home. I hope it slows down and even goes into reverse soon!
I believe if the media is not careful, it will bring on a crash with all this negative speculation in the same way they have prevented equities from recovering by keeping consumer confidence low.
It will all end in tears. 1989 all over again. I have just sold my house and am renting.
I'm a first time buyer, and with properties now at 5 times the average I can't see this being sustainable. A small increase in interest rates, unemployment or taxation is bound to reduce house prices. I believe we're due a large downturn in prices soon.
It doesn't make sense for house prices to go up 20% a year while average pay only increases 3-4% a year. Eventually the market will have to be corrected and I expect it to be done in a very rough fashion as so many buyers and sellers are linked by purchasing chains.
I also feel that if the supply of affordable housing is not improved the quality of life possible on most peoples' disposable income will collapse even further.
There might be a slight slow down but certainly not a crash, with the BoE handling interest rates consumers have the confidence that any rises will be controlled and planned, no more knee-jerk rises, that caused the crash in the early nineties. While demand outstrips supply the housing market will grow, people sitting tight to see what happens will only have a positive impact on house prices as supply gets tighter.
Of course house prices are slowing. Low interest rates will only support above inflation house price growth for so long, eventually prices become unaffordable again. Since when do over hyped markets have soft landings? A reduction in prices of some magnitude is very likely, especially now that some of the affordability measures are worse than prior to the previous crash.
I think Michael, England, put it well, and I see the likelihood of unemployment rising over the next six to 12 months to be a real risk for the UK economy. There are already frequent news stories of factories laying their staff off, and this will sadly have a direct impact on the housing market, as some are forced to sell their homes, and the buyers wont be there to hold up current prices, thus prices will fall. I see prices falling in 2003 by between 5% and 15% depending on where you live. London will get the ball rolling first, as usual.
I think it is disgraceful that the banks and building societies start pushing loans to gullible consumers creating these spending and house price booms. These institutions then offer little support when interest rates rise creating difficulties paying back the loans.
It only takes a small swing to make the sellers outnumber the buyers and that's when prices fall.
The danger is that this can become a stampede. Once that starts, any prospective buyers will stay out longer and the process becomes self-fulfilling, (just like the rise).
It's the same mechanism that drives the 7 year business cycle.
Prices started rising in 1995. It's now 2002. Draw your own conclusions....
I too am 28 and can not afford to purchase a property where I live. I would be happy with a two bedroom back to back. All new houses tend to be made with families in mind. If they were to build new modern back to backs, this is an ideal solution to get first time buyers on the ladder.
The status quo cannot continue. Here in Essex you have to earn at least £30,000 to be able to afford the most modest of properties. Most people do not earn this sort of money. I see it as simple supply and demand - as soon as people can no longer afford the prices being asked the prices will fall. The only people to suffer will be those who have taken on 100% (or more) mortgages in the last few years.
I think the prices in London will come down soon but the prices in other part of England will rise at a reasonable percentage. If you have not bought a house three times your salary then you are safe, as long as you are not working in IT or Financial market as the number of jobs available in the market is reducing by the day. As the jobs are reducing in effect of troublesome financial market, house prices in London are bound to come down.
I agree with some of the earlier comments that it is inevitable that a crash is on the way. However, I don¿t think it will be as severe as the last one because generally the economy is much more stable at the moment. I cannot wait as I might just be able to get a foot on the property ladder.
When I bought my house in the UK-South East, in 1990, I took a 100% mortgage at 15% to buy a property at £150,000. That cost me £1875 per month. Today that house has more than doubled and is worth £350,000, but a 100% mortgage would cost me 5% or less, so say £1,500 per month. Less than I was paying 12 months ago. whets more I can fix my rate, for 5 -10 years. So interest rates will not have an effect on my payments. By my calculations the market has at least another 35% to go, and what¿s more that will happen in 2003. 2004, now that's a different story.
The housing market is built on shifting sand like most market economies. Were there to be a war against Iraq with the obvious implications of that in terms of cost, excluding terrorist attacks, oil price implications, and the ever-present threat of recession, and the future is fraught with unforeseen dangers. Better order a plentiful supply of tissues NOW.
I am 25 and have been thinking about buying my house for around a year. Aside from not being able to afford one in London any longer, a major problem is that experts who comment on the market send out very mixed signals. On the one hand, it will fall by up to 30% over the next four years, on the other it will gain 10% in 2003. As a starting point, it would be useful to consolidate knowledge into one representative group or body, and they in turn could accurately reflect the true condition of the market.
I earn more than £30,000 a year and rent a flat in Essex at £750.00 a month. I need to buy a house for my wife and I, at 4 times my salary it will buy me a small one bedroom flat.....What is going on? The Bank of England must raise interest rates to at least 6% to stop the ever increasing property market. Most older people who bought their houses ages ago when they were affordable have an "I'm all right jack mentality", but could they afford it now? No, I don't think so
I am torn between wanting prices to rocket and collapse. I have a very nice house in SE England. It has increased in value dramatically since I bought it in '94. I win! I have four adult kids. They live with me. They can't afford their own places at these price levels. I lose! I love my kids to bits but to fulfil their desire to own their own homes is impossible in this market. I know that at some stage the market will collapse, as it did at the end of the 80s, but until then, its dinner for six!
Am I the only one to have noticed how the people talking the market up are either estate agents or those with a string of properties? Anyone who doesn't recognize this as a bubble now needs their head examined. And we all know what bubbles do...
Perhaps the government should limit the amount of investment properties one can own.
What with most places cutting jobs its only a matter of time before it hits the housing market, I don¿t see prices dropping that much in the North East but I can see them dropping slightly. I have been thinking of buying another house but like a lot of other people will either wait to see what happens or I might consider buying abroad, all doing this without touching any equity in our house as most people seem to be getting in a lot of debt thanks to the housing boom.
I am 28 with a wife and 2 kids and we cant even take a mortgage out with our salaries combined. Our kids are getting older and we can't even let them out into the garden because we don¿t own a house. It's is too hard for first time buyers.
I have read the comments today and I do believe the prices won't fall that much if at all for one basic factor; if they do people will stop selling their houses until they get a good price for them which means that there will be less houses on the market, this in turn will force the prices up as more people go for fewer properties. I my house lost value I certainly would not sell until the prices picked up again.
It's bound to slow down around Christmas. The real test will be in the spring
As far as I remember people were saying exactly the same things at this time last year. Don't forget that approaching Christmas the market slows down anyway. We sold our last house Dec 01 and the market was very quiet till the start of Feb 02. I expect the current market to keep going strong until interest rates start moving up, but with the world's main economies fairly static who knows when that could be. When the rates do eventually go up the risk is that those who bought Buy-to-Let properties will all try to bail out to consolidate their profits at once and flood the market. At this point expect to see an unprecedented crash. Until that time I believe this particular bubble has still got plenty of life left in it.
The UK media are talking us into believing the hype. If enough people think the market will crash, it probably will. However, a slowdown is welcome for most (apart from developers) and a slow steady rise in the future will suit us all.
There are two factors at work in the housing market. The short term situation of very low unemployment coupled with low interest rates is resulting in the current buying spree and record price increases. Eventually, one or both of these factors will abate and the market will quieten. The longer term factor is that there is shortage of housing in this country and more new households are being created than new houses built. Building new houses takes time and so the trend is unlikely to reverse for some time to come. Therefore the short term spurt we are experiencing is unlikely to end in a massive downturn as the there is a long term situation of demand outstripping supply. In short, houses are very affordable at the moment, but if they become less affordable then there will always be someone willing to step in and benefit from a small drop in prices before there is any kind of serious crash. The only thing that might do it could be the doomsayers that are have been consistently predicting a crash for over a year now. If enough people become convinced that there will be a crash then nobody will dare to buy a house and the prophesy will become self-fulfilling.
I've never understood why a rise in the valuation of houses is seen by so many as a good thing. It is only at the point where the asset's increase in price is realised (when you sell it) that the owner benefits. The only people who benefit from high prices are (i) those who earn a percentage of the price (estate agents, mortgage lenders, the Treasury), (ii) people who sell their home without buying a new one (but then they're forced to move and rent), and (iii) people who sell property other than their own home which they had bought for an investment. Similarly, an owner does not lose out just because the current price of their home is less than what they paid for it - it is only if they are subsequently unable to keep up repayments (e.g. through unemployment) and it is forcibly sold that it is a problem.
Let's organise a first-time buyers' strike, to reduce the prices of affordable homes.
No first time buyer should make an offer for any property between 1 January and 28 February. Then prices will be cheaper in March.
I believe the current boom in the property market has been manufactured by the hyped up property shortages coupled with the hyped up economy. The bubble has burst in the stock market and this will be repeated in the housing market. The population is not rising while the number of houses is. This "living alone" factor can not explain the hefty rises across all types of properties. Estate agent, developers and property speculators have had their way in keeping things going. It is time buyers realised that they can put an end to this. Prices can and will come down by 20-30% in some areas if buyers exercised caution. A seller is usually under more pressure to sell than a buyer is to buy. Renting these days is quite an option
Its heading for disaster. So far my department at the bank of 50 people has lost 10 people this week - this is the service industry that has been keeping things going - not manufacturing.
We moved to the UK and during our first year in the UK we rented hoping to buy once we had built a credit rating. House prices went crazy during that time that it was impossible to buy even a small two bedroom house. We decided to move back to Canada and now live in a gorgeous 4 bedroom house with all the luxuries.....a good move to say the least.
From personal experience living in a large central London apartment block, flats on sale now are struggling to sell for 15-20% less than near-identical flats were selling for during the summer. If this is typical then the London bubble might already have popped.
As a student in London shortly after the last housing crash, there were two separate occasions when I had to move out of rented property at a weeks notice as a result of the Landlords having them repossessed. In the first case it was as a result of a young couple who had both bought into the 'get on the housing ladder at any price' sales pitch and ended up with his and hers negative equity on their two small flats. In the second case it was an archetypal 'buy to let' student landlord who did his best to rip us off for our deposit in order to pay that months mortgage and keep the house. Unfortunately, I suspect there will be many people find themselves in a similar position to my former Landlords within the next few years. Needless to say, I've decided to keep on renting for the time being. It's one thing to get evicted from someone else's house so that the bank can repossess it, but it must be ten times worse when it's your own home.
Here are the signs of the times - Middle East unrest is effecting the US and hence the global economy. Large-scale redundancies in all industries, massive turn down in Telecoms, Finance, IT, Banking. Cost of living is going up with retailers not offering the sales to entice shoppers to spend. Inflation starts to creep up. Time taken to build new properties is in line with wartime construction as longer delays means value on completion is higher. Every sector in the economy from the Fire Service, Teachers, NHS etc all looking to the government to make living affordable so tax rises are also inevitable as there is no more money in the coffers. Bank of England is trying to balance recovering Manufacturing industries and run away house prices by keeping interest rates at all time low. Government looking to impose VAT on property purchases presumably to deter buy to let investors but will hit all first time buyers hardest. I conclude that the bubble is set to burst and anyone with two brain cells can see that. The BOE is trying to manage this bubble so expect very small and gradual interest rates rises - look to manufacturing as if they falter the rises will stop. One comment was some people would hold onto their properties if they can't get the price that they want. This is true but properties will still come onto the market when repossessions become the order of the day. People already stretched to the limit won't be able to afford any rises in repayment. At present property prices will continue to rise but base interest rates should be 6% and the speed in which this happens combined with the changes in the above conditions will determine how sharp the fall will be when the market corrects itself.
I do not believe we will see any crash in property prices unless there is a major economic jolt in the next 6-12 months. Present prices simply reflect laws of supply and demand and levels of borrowing. If the Economy starts to pick at any point next year the BoE will be swift in increasing interest rates. This will immediately put pressure on net disposable incomes and apply brakes to the housing markets. Keep your heads and common sense will return.
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