I have just spent a few days in the UK on the way to attending the Inman Connect conference in San Francisco. This visit has afforded me the opportunity to see how the UK property market has been fairing.
The last 2 years has seen a battering of the UK market with price falls as reported by both of the leading market indexes (Halifax and Nationwide) exceeding 20% from peak, however the general sentiment exposed in the papers in the short time I have been here is certainly observing the green shoots of recovery.
The latest Nationwide house price report for July showed the average value of a UK home rose 1.3% to stand at £158,871. This was the third straight month of rises, and the forecast was that the year could end with a net positive increase. This outcome was reported by the mortgage lender’s chief economist Martin Gahbauer as “an unthinkable outcome .. only a few months ago”. Just 5 months ago in February the year-on-year decline reached its largest level with a 17.6% fall in prices.
The data of house price values presented by Nationwide is based on mortgage lending – in June the Bank of England reported 45,584 mortgage approvals which is down significantly and this is in itself causing concern that these lower numbers may be effecting the average house price statistic. It is interesting that the prime reported data on house prices comes from mortgage lenders rather than a real estate industry body as in NZ.
The similar data from the other major lender Halifax showed July house prices also rising in July by 1.2% to £159,623 and as can be seen from the chart below the long fall in prices since the peak nearly 2 years ago is showing a small but significant turn around. The chart also tracks the NZ property price index. Both indicies track the price index from the point starting 6 years prior to the peak in the case of NZ this was in November 2007.
This lower activity in the UK market is also a function much like NZ of lower number of properties being put on the market. One of the leading real estate companies Savills reported that lower interest rates have enabled people to stay in their homes where they might otherwise have been forced to sell up in a higher interest rate environment. This shortage of listings is being judged to be reason why in London property prices are up for the 4th month in a row – in July by 1.5%.
Supporting this objective data is a survey undertaken by the property website propertyfinder.com which found that over half of respondents believe that house prices will rise by July 2010.
Countering this wave of optimism was a Sunday Telegraph opinion piece by David Blanchflower an economics professor at Dartmouth College in the USA and a visiting professor at Stirling University in the UK, as well as a member of the Bank of England’s Monetary Policy Committee.
His assertion is that house prices have further to fall as a function of affordability; an assertion similarly discussed in NZ. The affordability measure being based on the ratio between average earnings and average house prices. His view is that prices will need to fall back to the long-run average of 3.62 from the peak of the market when it hit 5.84. It has over the past 2 years fallen back to 4.33. This statistical analysis has certainly been debated well here in NZ especially through the forum of interest.co.nz where the view of a 30% fall along a similar extrapolation from Mr Blanchflower has been recently revised to a 15% fall – as ever time will tell as to the final picture which will unfold in the next couple of years.