Highlights:
House prices to fall by a further 5% in 2009
A return to single figure growth in 2010
Number of new home starts to fall below 90,000 in 2009
Interest rates to continue falling and remain low throughout 2009
Government’s green agenda to suffer
Cash rich investors set to be big winners in 2009
David Bexon, Managing Director of SmartNewHomes.com, comments: “The housing market landscape is constantly shifting. The daily twists and turns of the current climate are making it exceptionally hard to call how things will progress over the next twelve months. Very few people foresaw the turmoil the market has experienced in 2008, the repercussions of which are expected to resonate for a long time to come.
“While I predict some light at the end of the tunnel in 2009, any kind of recovery for the market will be modest at best, and depends heavily on the banks’ willingness to open up the mortgage market – increasing availability and passing on interest rate cuts. I believe Government pressure will eventually work to improve lending levels and stimulate the market as a whole, although I do not think we will see much of an improvement until the latter part of next year.”
House prices
“I expect overall house prices to continue declining at their current rate into early-to-mid 2009, with a total reduction of around 5% from where we are now by the end of the year. However, I believe we will start to see some recovery by late 2009, which could lead to single figure price growth in 2010.
“While the margin is diminishing, new homes are still being marketed at a higher value than re-sale property, and continue to command a premium from buyers who are keen to take advantage of the excellent incentives developers are currently offering to get people moving.
“While the lack of mortgage availability continues to strangle the overall market, demand for new homes remains strong, with our index showing that, over the last few months, developers’ marketing prices have fallen in line with demand price (the price buyers are willing to pay) for the first time.
“Our latest New Homes Index shows that new home prices have decreased by 10% since the peak experienced in July 2007. However, the lack of supply will hit home in certain areas in 2009, and while I expect a continued decline over much of next year, I do not expect new home prices to fall much further than 18% from their July 2007 peak.”
Sales / New home starts
“It has been well-documented that the number of new home starts has been heavily damaged in 2008, as the credit crunch continues to dictate a sluggish sales market.
“The Government will have to seriously review its overall housing aspirations in 2009, with three million new homes by 2020 looking an increasing implausible target. The number of new home completions for 2008 will fall far below those required to meet this target, and this will continue next year, when I expect the number of new homes built to drop below 90,000.
“There are a number of developers still progressing schemes, but these are likely to become even fewer in the coming months, if we do not see a dramatic change in the mortgage market. Our New Homes Index has shown a considerable fall in the number of new homes coming onto the market. Over the last six months alone, the number of new homes being put up for sale fell by 40%.
“Ultimately, a significant number of new homes will need to be built in order to satisfy the country’s pent-up demand for housing, but the current lack of finance is hindering developers’ ability to build our future homes.
“Transaction volumes will remain depressed in 2009, with less than 90,000 new home sales, and between 750,000 and 800,000 transactions in total.”
Interest rates
“While the base rate has already been reduced significantly, to encourage home buyers back to the market these cuts need to be passed on to borrowers immediately, and funds made available, if we are to see an improvement in activity.
“With recession now upon us, inflation is no longer a primary concern for the MPC, and the committee will continue to focus its efforts on supporting the housing market and wider economy. I expect interest rates to have come down again by spring 2009, and while it may fluctuate at this level, I do not expect the base rate to exceed its current level at any point during 2009.”
Key areas
“There are many areas throughout the country that will always be in high demand from home buyers, and those that are still crying out for new housing. I do not believe that prices in London and the South East will fall too much further for any sustained period. These regions will be among those hit the hardest by the lack of new home starts, as supply has never been close to reaching demand in these areas. With the increase of affordable options and competitive prices, those able to buy in this area in the current climate are set to benefit from strong future price growth, as the consequences of the current lack of housebuilding come to the fore.”
Affordable Housing
“We have already seen an increase of affordable options for homebuyers, with the recent boost to Government-led affordable housing initiatives, such as Homebuy Direct and funds recently injected through its National Clearing House, facilitating the quicker delivery of much needed affordable housing to those who may otherwise have faced a lengthy wait in the current market.
“Providing the Government increases its efforts to deliver affordable solutions, such as transferring more private units over to social housing, I expect this to continue into 2009, as many housebuilders seek to alleviate the pressure of excess stock until the outlook for off-plan sales improves.”
Eco Homes
“The Government’s green agenda is likely to suffer significantly, as fewer homes are built and the financial strain on homebuilders means they have no choice but to cut-back on these additional construction costs.”
Investors
“Potential winners of the current situation are cash-rich buyers who do not have to raise significant mortgage finance, so we are likely to see an increase in investors coming to the market early next year. Those with equity to buy over the next months are set to benefit from hugely competitive prices and significantly reduced interest rates.”
