Using some notes offered by the Monetary Policy Committee Roundtable. These are some of the key features facing the UK Housing Market at the moment.
- House prices have fallen sharply in recent months.
- Property transactions have fallen even more sharply.
- Housing slump has spread to wider economic slump which bodes ill for the Housing market.
Main Reasons for House price falls:
- Shortage of available mortgage finance.
- Mortgage lenders requiring bigger deposit.
- Expectations of further falls discouraging people from buying during a slump in prices
- Slowdown in Economy.
- Why House prices are falling.
Prospects for House prices in 2009
House prices could fall by upto 20-30% Reasons include:
- On going credit crunch shows no sign of easing in mortgage lending conditions.
- Prospects of severe recession and rising unemployment.Home repossessions currently low and could rise as economy enters full blow recession.
- Cuts in base rates may help reduce cost of mortgage payments, but this may not be sufficient to reverse house price falls.
- By late 2009, housing affordability may rise encouraging people to look for bargain value.
Cost of Mortgage Payments
- Despite cuts in base rates during past 12 months. The average cost of mortgages hasn’t changed much. This is because
- Some have been remortgaging from attractive deals 2-3 years ago.
- Banks have been increasing their profit margins.
Housing Transactions
Average number of property transactions has slumped. This is because:
- Selllers unwilling to accept lower prices.
- First time buyers struggling to get mortgages.
- Remortgaging activity has held up better than property transactions.
Effects of Falling House prices
- Will contribute to lower aggregate demand – negative wealth effect.
- Lead to job losses in construction and estate agents
- Could lead to lower sales of white goods associated with moving house.
- Some homeowners more effected than others e.g. homeowners who were hoping to upgrade or buy to let investors who have relied on rising property values.
All of the above is true – and nothing will change until a bottom is found for the market.
Each time I think we’ve hit bottom we just crash through the floor to the next level like a bad TV advert.
The next time GB orders the MPC to cut rates I hope that he also tells the banks to start lending as opposed to lining thir pockets until they feel confident to step out again.
I really hate banks!
Our economy needs confidence. Without banks doing more to inject the oil, the cogs wont turn. Our governments need to invest in small business, into those who are willing to get off their backsides and create enterprise and employment. Id rather put my savings will a good entrepreneur with common sense than with bank clerks and politicians who haven’t and wouldn’t really know about on the street risk and business assessment.
Any old fool can make bad decisions, not everyone is gifted with common sense beyond text book values.