You would be forgiven for believing that the housing market is in for a tough year during 2005. A number of leading companies have recently issued forecasts in which they predict the growth in the housing market is going to slow down or even fall during the next couple of years. However, the forecasters are not unanimous in their pessimistic outlook. Some, such as the Council of Mortgage Lenders (CML) forecast a slowdown in growth but growth none-the-less. Others forecast an actual downturn. The key issue appears to be whether house prices are about to go into freefall or whether they are in for a soft landing.
Pessimistic forecasts
Perhaps the most pessimistic of the forecasts is from Barclays Bank, which is expecting property prices to fall by as much as 20 per cent over the next two years. It anticipates prices to drop by 8 per cent next year, wiping £12,000 off the value of an average property. Chris Smallwood, Barclays chief economic adviser, has questioned the Bank of England’s predictions that house prices will fall ‘modestly’ next year. He believes that house prices will fall rapidly which will hit consumer confidence and affect spending.
Barclays is not alone in its predictions of doom and gloom. The Royal Institute of Chartered Surveyors (RICS), when reporting its October figures, said 41 per cent more surveyors were reporting price falls rather than rises – 12 per cent higher than in September. It is the sixth month in a row that RICS has reported a fall in new enquiries. Jeremy Leaf, housing spokesman for RICS, said: “Buyers are still nervous, which is not surprising given the quick-fire interest rate rises over the summer.” According to RICS, Scotland is the only place where house prices are still rising, although rates are now starting to slow.
Countrywide also joins the ranks of the pessimists, reporting a recent house price ‘slump’.
Fundamentally sound
Not all forecasters are so downbeat however. The Halifax, the UK’s largest lender, believes that housing market fundamentals remain sound and the Nationwide Building Society also reports that: “Our view is that over the coming years, house prices are more likely to grow at a very subdued rate rather than fall sharply.”
The Council of Mortgage Lenders (CML) forecasts that prices will actually rise 8 per cent during 2005 and also remains optimistic about the future for the housing market.
Inevitable fall?
One of the more interesting forecasts to be published recently has been the Hometrack survey of the national housing market. Hometrack has reported a fall in house prices of 0.6 per cent for the second consecutive month in November, making it the fifth month in a row in which there has been a fall. The average property price is now £164,800, down from £167,700 in June.
Hometrack is also reporting that the number of homebuyers registered with estate agents has fallen by 6.1 per cent and the number of unsold properties has increased by 3.3 per cent. It said the average number of viewings per house sale increased to an all time high of 12.5 per cent and the time taken to sell exceeded seven weeks for the first time ever. John Wriglesworth, Hometrack’s housing economist, said: “The housing market is well and truly over...further house price falls are inevitable over the coming months.”
Hometrack, it would appear, are definitely amongst the pessimists. Well, perhaps not. Wriglesworth goes on to say: “We expect house prices to stabilise next year and recover in the second half.” Why? Because “household incomes are rising 5 per cent per annum, unemployment is falling and is now at a 20-year low. Interest rates are now likely to remain stable rather than increase and lenders are continuing to extend the multiple of income on which they are willing to lend. All this points to a recovery of buyer confidence next year.”
Half and half
So there you have it. Hometrack agrees with the pessimists that prices have indeed fallen and will continue to do so for the next few months, but also agrees with the optimists that there is good reason to believe the market will come good in 2005.
I am not a housing economist and cannot pretend that I have studied the intricate details of recent housing statistics, but Wriglesworth’s analysis of the current situation seems to make sense to me. There is no denying that the housing market is weakening at the moment which should come as no surprise – after all, recent interest rate increases were made with that very objective in mind. But, as Wriglesworth said, the underlying economics remain sound: stable interest rates next year, low unemployment and rising incomes. They are all very good reasons for consumers to remain optimistic about the future. The British population also believes strongly in the virtues of home ownership – people want to be kings of their own castles and that is unlikely to change.
Peter Beaumont is sales and marketing director at Mortgages plc
