Darkening outlook for UK housing
The outlook for the UK housing market has darkened again. The usually optimistic bunch of property market watchers polled by Reuters, who have tended to predict ever-rising property prices no matter what the season or financial climate, now say the market will move sideways for the next two years.
They say that in the next few months, the small double-dip in prices that has begun will continue. Modest gains predicted less than three months ago for this year and next essentially have been wiped away.
No one should be surprised by this. It smacks of an awakening to reality more than a slight change to a few variables in the statistical model. What’s perhaps most striking about these new poll results is that economists think houses are even more overvalued now than they were in July even after a few straight months of falls.
The poll found the proportion of property market watchers who expect a double-dip in prices has swung to a three-quarters majority from about one in four minority in July. As polls go, that is a big shift in sentiment in a very short period of time. The consensus points to a 5 percent fall from here on top of the 1.4 percent fall over the last two months, but the forecast range goes as far down as 22.5 percent from here.
That tallies with anecdotal evidence. A friend who is heavily invested in London property says he’s having trouble selling and says a 15-20 percent fall in the market is likely.
Transaction volumes in Britain’s property market have slowed to a trickle, mortgage approvals are low, and banks are now asking for huge deposits and making rigorous income and credit checks before lending huge sums of money.
Rents are rising again after years of stagnation because people either can’t afford to buy or are scared to buy ahead of another potential fall in prices.
For years the argument from economists in Reuters housing market polls always went that Britain is a small island with huge mobs of people fighting over a limited supply of properties and that therefore house prices could only go one way — up. Look at the labour market, they said, it’s so strong, and so long as people are employed, house prices wouldn’t fall.
But after the Great Recession, which took base interest rates to record lows, leaving no downside at least from policy rates, and with more than half a million public sector jobs set to go as Britain’s Conservative-Liberal Democrat coalition comes down hard with government department cutbacks, the employment outlook isn’t so solid anymore.
Neither is the outlook for housing.