A review of 2009 and a look forward to what we might expect for UK economy in 2010
A look back at the past decade – The Economics of the Naughties
- A decade which brought us everything from NINJA mortgages to Quantitative easing and a new meaning of the phrase ‘economic stability’
UK House Prices 2007-09
Source: BBC - UK House Prices
The Council of Mortgage Lenders CML have stated that given the uncertainty surrounding the housing market they will not be making any predictions for house prices at the moment. Certainly, forecasting UK House prices can be a tricky issue.
The depth of the crash in 2007-08 caught many commentators by surprise. But, then few were predicting house prices would rise in 2009. And much to everyone’s surprise they have risen every month since spring 2009.
Low Interest Rates.
The cut in interest rates to 0.5%, is one of the main reason many homeowners have been able to hang onto their homes. It explains why mortgage defaults have been lower than in the last housing crash. Given state of the economy and the degree of spare capacity, interest rates are likely to remain low throughout 2010. (see: Interest rate predictions) If inflationary pressures do occur (and there is little sign of real inflation apart from cost push factors), taxes will rise rather than interest rates.
Also, more people will be coming to the end of fixed term mortgages so may be able to remortgage at lower rates than before. With low interest rates continuing in 2010, this should encourage buyers - at least those who are able to get a mortgage.
Mortgage Supply
Perhaps more important than house prices, is the number of property transactions. According to HMRC, the number of completed sales rose from a low of 40,000 in January to 90,000 in October. This suggest mortgage lending is slowly being relaxed, and buyers are slowly returning to the market.
Falling Prices and Confidence
The rise in house prices we have seen in 2009, may well encourage more people to put their property on the market, this increase in supply could depress prices, but, at the same time, the fact prices have stopped falling so sharply may mean banks are less strict about requiring very large deposits. If banks and consumers feel the worst of the crash is over, it will encourage more people to buy and more banks to lend. Many people are feeling now is a good time to buy.
Growth and Unemployment
This has been the longest recession (six quarters of negative growth) since the Great Depression, but, unemployment has risen less than expected (see: why is unemployment not higher?) This muted rise in unemployment has been a big factor in stabilising prices. 2010 should see a sluggish economic recovery, unemployment will take a long time to fall, but, if it does peak soon, that will definitely help the UK Housing market.
Long Term Fundamentals
House prices in the US, are still falling nearly 4 years since they first started to fall in 2006. Why should the UK be any different? Well one reason is the excess supply in US and the continued shortage of supply in UK. House price to income ratios are still above long term trends, but, there is also still a long term shortage of housing. Whilst this occurs, UK house prices will continue to be more expensive than other countries
In April 2008, I suggested despite short term factors, in the long run, house prices could well rise to £300,00 in the next 10 years. (see long run forecasts) This is not necessarily a good thing, but, it could well happen
In recent memory we have had two housing boom and busts. There are many similarities, but, also quite a few differences.
Differences in Housing Crashes:
1. Length of Time
The housing bust of 1990 lasted for nearly five years. By contrast, 2009 saw an unexpected rise in prices bringing an end to falling house prices after only two years. Some suggest this rebound in prices is premature and house prices will resume a downward fall in 2010. Nevertheless it is quite a significant rebound in prices (even based on very thin trading volumes, which might be distorting prices) If the current crash follows the last one, we might expect another two years of falling prices.
2. Interest Rates.
The huge difference between the two housing busts is the level of interest rates. The 1990 bust was caused primarily because of the very high levels of interest rates (reaching 15% at their peak). This made mortgages very expensive causing record levels of mortgage default. By contrast, the current bust is against a backdrop of 0.5% interest rates. The low interest rates mean that mortgage defaults have been lower than last time. Less people have been having difficult with payments.
One consequence of this is that payment problems may merely delayed until later in the cycle when interest rates rise.
Housing Payments
Source: Financial report on British Households 2009 by NMG. pdf
This shows a much lower level of households are experiencing problems with housing payments than in 1991.
3. Credit Crunch
The current crash has led to a sharp reduction in the volume and number of mortgages available.
4. Depth of Recession
The current recession is much deeper than the 1991-92 recession. Currently, GDP has fallen by 6% and lasted six consecutive quarters, which is a sharper and more long lasting fall than in 1991. However, despite the deeper recession, the housing crash (so far) has not been as sharp as in 1991. This suggests levels of interest rates are more important than economic growth in influencing nature of housing market.
5. Affordability
At the end of the crash in 1995 the ratio of house prices to earnings for FTB fell to just over 2.1. By contrast, the ratio of house prices to earnings for FTB is still over 4.0. Suggesting house prices are still overvalued.
The big question is whether 2009, really is the end of the housing crash or whether it is just a temporary pause before higher unemployment push prices much lower.
Related
Artificial hips help the ageing and infirm, but government Hips for property owners seem to help no one except the hips purveyors. Estate agents think they are discouraging sellers as they have to pay up front for a Hip and this ‘discourages the market testers who may have sold if the deal was right’.
1. Energy performance certificate
2. A Property Information Questionnaire
3. Evidence of title
4. Local Authority searches
5. Drainage and water searches
6. Leasehold information
7. Sales particulars
Not included: all the legal documents a solicitor needs prior to exchanging contracts.
A hip lasts until the house is sold. If it is taken off the market for less than 12 months and put back on, the same HIP may be used. But, if it is taken off for 12 months or more you will need a new one.
Anyone marketing a house in England and Wales (Scotland Excluded). e.g. if you sell to a family member directly there is no need to get a HIP. But, if you put a for sale sign in window, you need to commission one.
1. It takes time to prepare a Hip and whilst some aspects can be done in parallel in some areas you need to start 3 months before you want to sell.
2. The cost of a hip can vary from £200- £500 for a similar property. You do not need to buy your Hip from your high street estate agent. According to Which you should shop around for a better price.
3. You still need a solicitor to ensure you acquire clean title to the purchased property.
4. Buyers may still need to conduct extra searches on top of the Hip. This can reveal other issues with local authorities like parking regulation changes or lack of planning permissions for gardens.
5. Searches for Hips can go out of date before the property is sold.
6. Energy performance certificates seem to be disregarded by potential buyers.
Hips should speed up the selling process but that is still fraught with delays at your solicitor.
A new government may scrap the present scheme and bring in a more comprehensive but none compulsory‘ Ready Pack’ containing all the legal documents and draft contracts.
Sales that are currently excluded from Hip regulations including, sales that are not marketed, Right to buy schemes, mixed properties may be brought into a scheme.
For more information for Buyers, Sellers or the industry professionals read the Direct Gov web site
