House price hothouse

One can barely move for tripping over reports of ‘green shoots’ sprouting across the UK. While plenty of industries are trying to work out whether these early economic signs of an end to the downturn are real - or at risk of being blown away by recessionary winds - none is more feverish than the febrile housing market.

Here, a mix of nervy buyers, fretful sellers, antsy estate agents and twitchy developers avidly follow each and every survey that unveils the latest move in house prices, and have hopes dashed – or raised – on an almost weekly basis.

Since the market hit its peak in late 2007, the overwhelming sensation has been one of a lurching freefall, compounded by the collapse of Lehman Brothers in October last year. As the Bank of England chopped its base rate to avert an economic crisis and stock markets bucked back and forth, so the acceleration of fears of a housing crash led to annual price falls of as much as 20% in some areas.

Although the past six months have been little other than turbulent for all, early isolated indicators of an end to the freefall – easily dismissed as one-off statistical, or regional, blips – have now given way to a rash of separate surveys suggesting, if not an abrupt halt, then at least a slowdown.

Firstly, a number of short-term monthly house price indices have begun to display harmony in stabilising prices. In May, Halifax recorded its biggest one-month house price surge since 2003 - 2.6% - based on mortgage approvals (although they ticked back by 0.5% in June); meanwhile Hometrack, which records the asking price accepted by sellers, recorded an absence of price falls – in June it said the average price of a home in England and Wales hovered at roughly the same, £155,600, and pointed to a surge in the volume of sales and a low supply of available properties as the likely contributors.

“Early isolated indicators of an end to the freefall have given way to surveys suggesting, if not an abrupt halt, then at least a slowdown.”

But it’s not just the immediate factors that paint a less bleak picture: longer-term trends that more closely track actual market trends have also perked up.

Take the rolling ‘three-month’ house price data from Nationwide: in the three months to July, prices rose by 2.6 % - the highest since February 2007.

Elsewhere, chartered surveyors and estate agents who take a broader view of the market’s direction have begun to talk unabashedly of a steadied housing market. The Royal Institution of Chartered Surveyors (RICS) has underlined its growing confidence in the market, particularly after recent figures from the Land Registry revealed a very slight rise of 0.1% in England and Wales in June.

“There’s evidence that the housing market is stabilising: if more timely buyer enquiries and mortgage approvals data is anything to go by, the actual level of completed sales is likely to climb towards 40,000 over the coming months," says Simon Rubinsohn, RICS chief economist.

But despite this welter of seemingly positive news, there are plenty of worrying factors that could trample the green shoots.

Although the Bank of England figures provide some support for optimists, it’s worth noting that the mortgage approval number is just a little over half that of the average monthly level of 95,000 recorded by the Bank between 1993 and 2008.

“A house price rise is not a done deal; we’re not quite there yet. House prices won’t run away from us.” Carl Astorri, global head of economics and asset strategy, Coutts.

Carl Astorri, global head of economics and asset strategy at Coutts, warns that the potential spectre of jobless figures, and a lack of supply of properties, could also hold back growth.

“There are two main headwinds: first, rising unemployment; and, second, a potential overhang of pent-up supply,” he warns. “As unemployment tends to keep rising for a year or so after the economy has bottomed, it will probably be rising for much of next year, and that will keep the housing market in check.”

However, Astorri is more concerned about what he calls the potential “supply overhang” since plenty of estate agents report that they have very few properties on their books.

“Sellers have chosen to sit on their hands rather than sell at an asking price they feel is too low; so any sustained pick-up in prices could be tempered or even killed by a rise in supply,” he adds. “A house price rise is not a done deal; we’re not quite there yet. House prices won’t run away from us.”

To this end, it’s vital not to get carried away. In truth, nobody knows where the bottom of the housing market is; trying to time it perfectly is fool’s gold, and working out when to move or buy at the most profitable moment eludes nearly everybody.

It’s worth noting that one critical alert - the so-called ‘house price to earnings ratio’ that compares average salaries to house prices – is hovering at around 4.4%, some way above its 4% historic long-term average.

But tellingly, this has dropped like a stone from a peak of 5.8 in July 2007 and is at a level not seen for six and a half years. And if the expectation that Bank base rate will be kept at 0.5% until the end of 2009 holds, as indicated by governor Mervyn King, then hopes that lower interest rates will translate into cheaper finance for buyers could take root.

And that’s a green shoot taking root that all can hope for.


By Sam Dunn