Housing market ‘relatively stable’

There are many factors which affect the housing market – none more so than public confidence. Whether this confidence is driven by the ability to obtain a mortgage, unemployment figures, house prices or simply the general state of the economy it has the power to drive (or stunt) growth of the housing market.  Kate Saines looks into this on behalf of myfinances.co.uk

New figures out last week from Nationwide Building Society’s Consumer Confidence index suggest people’s attitude toward spending is toughening and they are holding back when it comes to making major purchases.

And this is not good for house prices.

Robert Gardner, Nationwide’s chief economist, said: “There has been a rise in the number of consumers who believe now is a bad time to make major purchases.

“With consumers continuing to expect a fall in house prices over the next six months, it is perhaps unsurprising they are expressing reservations towards making substantial financial commitments at the present time.”

The lack of demand for housing stock, therefore, means sellers are finding it tough to shift their homes at the moment. With a shortage of buyers they are being forced to either take their homes off of the market or rent out their properties to tenants.

Is anyone actually buying or selling homes at the moment? And what will really happen over the next few months? We’ve looked at the figures and tapped into the knowledge of some of the experts to find out.

What’s happened to house prices over the summer?

Data from the indexes would suggest house prices are indeed going down.

The Association of Mortgage Intermediaries (AMI) revealed in July house prices had continued to fall in most parts of the UK outside London during the second quarter of 2011.

Government figures, from the Department of Communities and Local Government, showed average house prices were 0.5 per cent lower over the same quarter than the previous three months.

And over the last year, its statistics showed, prices had fallen by 1.8 per cent in England, 5.6 per cent in Wales, 2.3 per cent in Scotland and 8.1 per cent in Northern Ireland.

Meanwhile, the Royal Institute of Chartered Surveyors (Rics) found house prices were ‘slipping further’ according to its Housing Market survey of August 9th.

The number of mortgage approvals provides us with a good idea of how the housing market is doing. And figures from the British Bankers’ Association (BBA) show net mortgage lending was 1.7 per cent in July – ahead of the 0.7 per cent for the whole of the mortgage market in June.

The BBA’s statistics director, David Brooks, said: “Demand for borrowing from both households and companies continue to be weak reflecting the slow growth in the economy.”

Meanwhile, the AMI’s report suggests gross lending for this year may fall slightly below the CML’s target of £140bn. These figures simply reflect the fact people are not buying homes, which is in turn helping to lower house prices.

The average house price in July, according to the Halifax House Price Index, was £163,981. This was up 0.3 per cent on the previous month but, compared to July 2010 was 2.6 per cent lower.

It’s a similar story with the Nationwide Monthly House Price report which showed a slight increase from June to July, but fell by 0.6 per cent from July to August when data for the latest month was released on September 1st and showed a decrease over the last year.

But in general it would seem these changes are not much to write home about.

Nationwide’s Robert Gardner sums up the situation. “Stability has been the watchword for the UK housing market over the past 12 months,” he said.

“Sluggish demand for homes, combined with the only gradual rise in supply of available properties has helped to keep property prices relatively stable.”

What the experts say

Stability is indeed the key word when it comes to property prices at the moment, and it’s not just Nationwide’s economist using this definition.

Martin Ellis, housing economist for Halifax, said the lack of change in both the level of house sales and the number of properties on the market for sale since 2010 has helped stabilise house prices in 2011.

Of course the fact so many more people are being denied mortgages because of tight lending conditions is playing a large part in the lack of positive movement.

Ian Perry of Rics said: “While the holiday season appears to have had some impact on the market, the continual problem of inaccessible mortgage finance is still preventing first time buyers from accessing the market.”

First-time buyers play an important role in helping to fuel the housing market and Halifax recently revealed the number of first-time buyers dropped by ten per cent at the beginning of 2011 compared to the same time in 2010.

In fact 86,000 first-time buyers entered the market in the first half of 2011, half the number in the first six months of 2007 when there were 181,500.

But Stephen Noakes, commercial director of Halifax Mortgages, suggests this lack of first-time buyer activity is down more to fear of not being accepted as opposed to them actually being turned down.

He said: “The significant challenges in raising a deposit and widespread pessimism about the chances of being accepted for a mortgage are clearly preventing some potential first time buyers from even attempting to get on the ladder.

“However, at Halifax we accept eight out of ten first-time buyer applications and, as these latest figures show, there are opportunities for those who do want to buy their first home.”

But with fewer first timers out there to buoy up the market, surely prices will inevitably start to fall?

It will make potential sellers uneasy. As Rics’ Ian Perry explained: “With prices continuing to fall many would-be sellers seem unwilling to lower their expectations and are reluctant to place their property on the market.”

Robert Gardner of Nationwide also blamed an uncertain economic climate on the lack of property transactions, which he said remained at historically low levels in previous months.

However, he also added: “Some commentators have suggested there may be more fundamental factors at play, such as a trend away from owner-occupancy.”

The rest of the year

This trend of ‘stability’ looks set to continue for the rest of the year, if you believe Martin Ellis, housing economist for Halifax. He expects this pattern to continue over the rest of the year with little genuine direction in either house prices or sales.

“Sustained low interest rates and a slowly improving economy,” he said, “should help to support demand in the face of pressure from weak earnings growth, relatively high inflation and higher taxes.”

Members of Rics meanwhile, are pessimistic. They expect prices to fall over the next three months, and they also expect the number of sales to rise over the same time period.

 

 

By Kate Saines