Where next for house prices? The pros and cons in 2011.
It is customary at this time of year to reflect on the past year and look forward to the next. As a slight change to the traditional output I thought it might be helpful to look at some of the different winds that will buffet the housing market during 2011. Some are helpful, some less so and strangely some could be used by either the optimists or the pessimists.
I have also included some useful numbers that may help us all to at least agree where we are now.
• Stamp duty relief for 1st time buyers continues for homes up to £250k until the end of the year.
• Fewer homes are coming onto the market with just 2,708 a day when compared to the long term average of over 5,000.
• Demand is at least theoretically high with over 8m people searching the property web site each month.
• Rents are rising which makes buying a home seem less expensive and higher rents lead to better yields for investors
• There is competition from new lenders coming into the market who want market share and who don’t carry the baggage of the established players
• Falling prices make homes more affordable both to first time buyers and to those who find that their money will go further than they had thought.
• Increase in VAT – from 4th Jan. The cost of selling, moving and doing work to a home you buy means that many people are looking at improving their existing home rather than moving
• Increase in Stamp Duty for sales over £1m from April 6th. In total this will cost buyers around £100m.
• Shrinking mortgage availability. Three years ago there were over 11,000 different mortgage products. Today there are only 2,500.
• Tighter lending criteria. Many borrowers face larger deposit requirements, the FSA is suggesting an end to self-certified or so called ‘liar loans’ which could cut the already low volume of mortgages by as much as 40%.
• Sad but a fact. There will be more ‘forced’ sellers as the three ‘D’s’ continue to push some vendors to accept more ‘realistic’ prices. Death, Debt and Divorce will each play an active part in 2011.
• Higher deposits required – both for 1st time buyers and those moving up the ladder. These take time to save out of taxed income.
• Government cuts (eg. Tuition fees) will impact first on confidence and then in fact as students for example face repaying their student loans rather than saving up a deposit.
• A trend in falling prices makes it hard to persuade buyers to pay for something today that they think might be cheaper tomorrow.
• Global economy – it’s hard to look around the world, particularly in Europe and North America and find good news stories. Sentiment is affected by poor news from abroad.
• Low yields. Whilst rents and therefore yields are increasing they are still too low in many places to offer a respectable reward for an illiquid and costly asset to trade.
• Interest rates must rise and whilst recent talk of 5% by one MPC member must be scare-mongering rates can only go one way – eventually.
• Household indebtedness. People are paying down debt and being encouraged to do so by Government.
• Rising unemployment in both the Public and Private sectors will impact on both buyers and sellers.
What the experts say (if you can cut through the waffle!).
Savills – Down 3% (http://www.savills.co.uk/news/uk-news/november-2010-news/savills-forecast-2011.aspx)
Knight Frank – Down 3.3% (http://resources.knightfrank.com/GetResearchResource.ashx?id=12060)
Hamptons – 0% (http://www.hamptons.co.uk/en-gb/About-Hamptons/News–Events/Property-Market-Review/)
Capital Economics – Down 5% (http://www.capitaleconomics.com/clientarea/articles/UK%20Housing%20Market%20Analyst%2004-09.pdf_
Hometrack – Down 2% (http://www.hometrack.co.uk/commentary-and-analysis/house-price-survey/20101129.cfm)
Halifax – 0% (http://www.bbc.co.uk/news/business-11914386)
Charcol – Up 2% (http://www.bbc.co.uk/news/business-11914386)
Council of Mortgage Lenders – Down 2% (http://www.cml.org.uk/cml/publications/newsandviews/80/290)
Where are we now?
The price of ‘an average house’ in December 2010 varies depending on who you ask and the method they use to calculate it. After 25 years in the business, I am still looking for ‘the average house’.
Halifax – £164,708
Nationwide – £163,398
Acadametrics – £224,758
Land Registry – £165,505
According to Rightmove.co.uk the average asking price is £222,410. The gap between average asking and average sale prices peaked in 2010 at over £75,000.
Finally, you may be interested to know that average value of a loan for House Purchase according to the British Bankers Association is – £145,000 (Average since 1997 = £107,000). Below you will see the historic numbers.
It’s hard to find many people who think that house prices will end 2011 higher than they are today. For what it’s worth I am more bearish than most. I think prices will slide by as much as 10%. One thing everyone does agree on however is that volumes will be no higher than they were this year. The days of 1.4m sales are a distant memory. Next year I expect less than 840,000. Bad news for all who earn on the back of house sales – Agents of course but also lawyers, removal companies, builders who work on the new homes, furniture manufactures, decorators. Even printers of change of address cards!
A happy new year to all.