With news that house prices have fallen 3.3% since 12 months ago, the big question is how severe will be the market downturn and is this a real crisis or just a minor readjustment?
There is plenty of Bad news on the Housing Market
- House prices fell 2.5% in May according to Halifax, the nation’s biggest lender. See: Why house prices are falling
- Mortgage approvals have fallen to the lowest levels for 15 years. This is caused by the credit crunch which has reduced availability of mortgage finance.
- Lack of Affordability. Despite the falls, 1 in 4 of first time buyers say it is impossible to get on the property ladder in their local area. Ratio of House prices to earnings are still above long term trends
- Down Turn in the Buy to Let sector. (see buy to let problems)
- Rising Cost push inflation (from oil prices) make rate cuts difficult and are also reducing spending power of consumers.
- America is showing how house prices can fall alot more than first feared.
Some of these factors are hopefully short term. The credit crunch should not last forever, although it is currently difficult to predict when conditions will improve. If mortgage availability improved this might help to stabilise the market. Also, if the economy slows as expected it may allow the MPC to cut rates.
However, although there are some short term problems there are also deeper underlying problems with the housing market such as:
- Propensity to Boom and Bust
- Shortage of supply and difficulty in building new houses.
- Prices out of the reach for many young people causing intergenerational inequality.
- Problems with lack of rented accomodation
In the long term, I feel that house prices will remain expensive and out of reach of many young people. This is because there are long term factors increasing demand for housing, but, supply is failing to meet demand. So in the short term we have a crisis of falling prices, lack of mortgage finance and the uncertainty this creates. But, in the long term the crisis of the housing market is of a different nature; it is a society where homeownership is highly valued, but, for many it proves an elusive dream
Long Term forecasts for UK Housing Market
There is hope. I have discovered a company which is willing to purchase your home, rent it back to you for a fixed period (tailored to your needs & requirements) and then even give you the option to repurchase your home back at a guaranteed purchase price. This is brilliant for those people whose mortgage rates have risen higher than if they were renting. They are then able to rent and then buy their home back. So no problem getting back on to the property ladder either. Problem solved. I wish more people knew about this “Rent back & Buy back” scheme, as it will really help a lot of people and relieve them from their worries.