4
Dec
The dark before the dawn of price recovery
Ask some analysts about the prospects for the property market and
the answer will be a gloomy one. They will talk about recession and
unemployment, and how these factors will stifle any recovery in the
market. But is this in fact the case? It may be that things are a
lot better than that.
For one thing, Britain has, according to Bank of England governor
Mervyn King, probably been in recession for months already, with
only the technical definition of two successive quarters of
negative growth remaining to be fulfilled when the next
three-monthly gross domestic product figures are published.
Yet at the same time, house prices, mortgage lending volumes and
house sales have been falling for longer than that. In contrast to
consumer prices index inflation, which has only just started to
fall, the drop in house prices can be traced back to the turn of
the year. Notwithstanding talk of a price correction, it may
therefore be that the housing market is at a more advanced stage of
its cycle than the rest of the economy. If it has hit a downturn
sooner, then it may logically follow that recovery will also happen
in this sector before others.
Recent evidence may indicate that green shoots are starting to
emerge. Earlier this month figures from the Council of Mortgage
Lenders (CML) showed that the gross volume of mortgage lending rose
seven per cent between September and October, increasing from
£17.5 billion to £18.7 billion. The CML chose to
emphasise how much less this was than last year, using the
announcement to urge the government to provide more help for the
market via the pre-Budget report and the Crosby report. But the
figures were up all the same.
While any single set of figures may represent a blip in isolation,
either in contradiction of other figures or of longer-term trends,
this particular hint that things could be starting to improve was
not alone. Today Nationwide revealed that the decline in house
prices this month was only 0.4 per cent, much less than the 1.3 per
cent recorded in October. Moreover, even the annual house price
fall was down, from 14.6 per cent last month to 13.9 per cent. This
could be the start of a stabilisation in prices that will
subsequently be followed by a rise.
Speaking about the figures, Nationwide chief economist Fionnuala
Earley did not commit to the view that this was the start of a
recovery. But she did note a couple of factors that may indeed make
a difference. One was the recent cuts in interest rates by the Bank
of England and another could be the implementation of the Crosby
report recommendation that the government guarantees
mortgage-backed securities. She said of the former move that it
will "help a significant number of existing and potential
homebuyers", while the latter could be a "catalyst" to boost the
mortgage market.
So it may be that the action taken by the Bank of England and the
further reduction in the base rate from three per cent to two per
cent on December 4th will prove to be the extra intervention the
market needs to stay ahead of the economic cycle. If so, those with
the funds to invest in top-end property may find that now is the
best time to do so, with the bottom of the market and subsequent
recovery closer than many think.
