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Are House Prices Stabilising?



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Some life has been breathed into the housing market lately. However the picture is extremely mixed across the country and the future remains very uncertain.

Quick Move Now's summary of the housing market looks to key institutions and market indicators within the finance and house sectors to gain an insight into where the market is and where it is heading.

House Price Index Halifax 1.6% (monthly change) -18.14% (fall since peak)
House Price Index Nationwide +0.9% (monthly change) -13.02% (fall since peak)
Interest Rates 0.5%
Quick Move FTI 31%
Inflation 1.6%
Economic Growth -0.8%
Unemployment 2.47 million

*Information compiled from various sources. Quick Move Now takes no responsibility for its accuracy. Last updated 06/10/2009

House price increases have been in the headlines constantly in recent months. However local market conditions vary greatly depending on area, house type, value. We have identified a number of trends which may explain the current market and give us an insight into what may happen in coming months.

What is happening to house prices?

Supply and demand
There is a lot of pent up demand, some people need to buy a house whatever the market conditions (e.g. growing family, job move). At the same time a lack of supply has been caused by most home owners not looking sell their home because of the market conditions. This combination is currently driving prices, however this won’t last forever.

Fluctuating House Prices
House prices always fluctuate and as the market responds to the rapid collapse in prices you would expect significant fluctuations. Indeed analysis of the last house price crash in early 1990’s shows that although there was a prolonged overall trend of falling prices there were occasional months of fairly dramatic price increases as the market tried to stutter to life.

Regional Variation
When the dust settles on this recession the North South divide could be bigger than ever and may stay that way. In many area’s of the country house prices are still falling and could do so for a prolonged period. In the south east there is generally a housing shortage while in a lot of the rest of the country there is an oversupply.

What will happen to future house prices:
A number of factors will cause continued house price instability in coming months/years.

Limited Pool of Home Buyers:
• Few home buyers have 15-30% deposit to put down.
• Most buyers have to sell a house in order to buy. It is often still difficult to sell and therefore many house sales stall before they even get going.
• Unlike in previous years buyers with a poor credit rating just won’t get a mortgage now.
• A lot of potential buyers are still not confident that the market has settled down and don’t want to risk seeing their asset lose value in the future.

Number of house sales
The number of home owners selling their houses is still well below healthy, long-term levels. Indeed house sale transactions in June this year were 60% down on same month in 2007. The constrained volume of house sales is leading to a temporary skew in demand/supply which will not last.

Mortgage lending
As lenders try to re-coup losses and limit further exposure to housing market fluctuations, mortgages remain difficult and expensive to secure.

• Amount of mortgage finance available is below historic levels as banks try to limit exposure to housing market.
• After getting their fingers burned with sub-prime, banks are now unlikely to give lending to those with poor credit.
• In an attempt to balance the books, the banks are charging higher fees and interest margins.
• Should interest rates increase over coming months it will severely impact affordability.

Unemployment
UK unemployment is nearing 2.5 million and is expected to keep increasing. Latest unemployment figures from the USA are running at a 26 yr high which may indicate what is to come this side of the pond.

Unemployment is not uniform and in areas that are worst effected, house prices may fall as demand dries up.

Dramatic cuts in government spending are also expected and public sector jobs will go. Many area’s of England and Wales are very reliant on government jobs and in these area’s the impact could be drastic.

Repossessions
Huge numbers of home owners are in mortgage arrears. In normal circumstances they would have been repossessed but due mostly to government pressure and concern over results/share prices a lot of this “bad news” has been deferred. An influx of a large number of repo’s will further depress prices. Repossessions are normally listed very competitively to ensure the house sells. Normal house sellers then try to compete and the whole market is dragged down.


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