Homeowners will lose £20,000 by next Christmas as house prices drop 10%
By SEAN POULTER
Last updated at 23:14 31 December 2007
Glimpse of the future: A slump in the housing market is indicated after ten years during which prices have doubled
An average of £20,000 will be wiped off the value of every home by next Christmas, it is claimed today.
This will be the effect of a 10 per cent fall in property prices compared with their peak in August, say analysts.
In total, this equates to a staggering £400billion fall in the bricks and mortar wealth of the nation.
The figures come from accountants at Grant Thornton, who warn the reverse is likely to deliver a huge blow to consumer confidence and, potentially, the wider economy.
House prices have more than doubled in the last ten years, creating a feeling of economic well-being and security that generated a consumer spending boom.
This boom, built on credit, kept high-street stores busy, promoted manufacturing orders and ensured the UK avoided recession.
Grant Thornton warns that a fall in house prices could have exactly the opposite effect. Homeowners will feel poorer, leading them to tighten their belts and limit their spending which could starve stores of income, threatening closures and job losses.
Senior tax partner at Grant Thornton, Maurice Fitzpatrick, said: "It appears that house prices hit their peak in August. We can expect a fall of 3 per cent by the end of 2007, followed by a further fall of 7 per cent in 2008.
"This would wipe £400billion off the value of UK residential property or an average of £20,000 per household.
"A 'burn off' of this degree of personal wealth would tend to make people more cautious about borrowing. That would damage any feelgood factor and, potentially, economic growth."
He added: "The value of a person's home is crucial in terms of the psychology of personal and financial well-being. Just as rising property prices promoted a feelgood factor and spending, so falls could have a powerful opposite effect."
Mr Fitzpatrick said his projections represent an analysis of the figures based on the "best available hard evidence".
The Bank of England's decision to cut the base rate by a quarter point in December to 5.5 per cent was intended to head off the worst effects of the credit crunch. However, City analysts believe that this falls well short of having any meaningful effect.
Many banks and building societies have refused to pass on the cut to borrowers. At the same time, they have slashed the number of mortgages they are offering, leading to a fall in the number of property sales and prices.
Experts at Capital Economics revised their forecasts to suggest price falls over the next two years will be greater than it originally anticipated.
They believe prices will fall by an average of 5 per cent in 2008 and 8 per cent in 2009, wiping out all the increases of the last 18 months.
Previously, it had forecast a fall of 3 per cent in each of these two years.
However, price falls could turn out to be good news for firsttime buyers. Chief economist at the Halifax, Martin Ellis, said: "A more subdued housing market over the next few years is a positive step for potential new entrants."
Business leaders also warned that the property market could suffer a "sharp reversal" in 2008.
Confederation of British Industry director-general Richard Lambert warned that "a sharp reversal" in house prices would have serious consequences but added that there was a risk excessively gloomy talk could fuel a deeper downturn than need take place.
Tuesday 27 May 2008
CML distorts info on the housing market!!
The Council of Mortgage Lender (CML) revised their forecast for UK House prices for 2008 from an anticipated rise of 1% as of Oct 07 to now project a fall in prices of 7%. The CML, inline with its member institutions has a vested interest in talking up the housing market as evidenced by the inaccuracy of their housing market forecasts during periods of falling house prices.
As a reminder to readers, the Market Oracle forecast for UK house prices made ahead of the actual peak in the housing market in August 2007 is for a 15% drop over 2 years from August 2007 to August 2009, therefore forecasting a 7% to 7.5% drop for the year 2008.
UK house prices (as measured by the Halifax NSA data) have fallen by 2.2% so far during 2008. Therefore it appears that the CML having proved inept at providing an accurate house price forecast and now appear to have taken the safe route of extrapolating and rounding the price trend this year to the end of 2008 i.e. 2.2% X3 = 6.6% rounded up to 7%. Similarly the Royal Institute of Surveyors (RICS) have revised their forecast lower for 2008 from unchanged to now project a 5% fall.
The article Media Lessons from 1989! presented headlines from the last housing bear market of how forecasts issued by the institutions with a vested interest in the mortgage market, that were lapped up by the mainstream media tended to be grossly inaccurate against the actual outcome. Which is why even as recently as March of this year, many of the chief economist's of the big mortgage providers were still talking up the prospects for the UK housing market suggesting house prices would not fall this year i.e. Britains biggest mortgage bank, the Halifax gave a positive spin on UK House prices in March 08, - "strong underlying fundamentals will continue to support the market throughout 2008". "Over the past year, the average price of a home in the UK has increased by £4,390 to £196,649," he commented. "Whilst the housing market has slowed over the past six months, it is supported by sound economic fundamentals. Interest rate cuts by the Bank of England are also helping to underpin house prices,".
The UK Housing market remains closely on track to fulfil the 2 year forecast for a 15% real terms decline. Beyond August 2009, preliminary analysis suggests that the housing market will continue to be weak with no prospects of real-term gains.
House Prices and Crude Oil Fuelled Stagflation
Crude oil hitting $135 shows signs of the stagflationary environment that the world is entering. Despite the short-term overbought state, crude oil looks set to continue its inexorable trend towards $200 and then beyond, doubling every few years as unrelenting emerging markets demand chases Peak Oil capped supply. The analysis posted just 2 days ago ( Oil Crisis Stagflation Spiral Special ) explained why crude oil fuelled stagflation is going to be with us for many years and warned of a possible imminent price spike from the then $127 to beyond $140, with crude now at above $134 the price spike is well under way.
The consequences of stagflation for the UK housing market is for a rise in even the flawed official CPI inflation measure. The real rate of inflation for the UK is probably at RPI +1% and therefore 5.2%. Under such an increasingly inflationary environment it is difficult for nominal house prices to fall much beyond the forecast 15%, as each year house prices are losing an additional inflation adjusted value of 5% therefore over a 3 year period that may see UK house prices fall by say 18% in nominal-terms, when adjusted for 5% inflation this would imply a real-terms fall of in-excess of 33%.
Therefore the rate of real inflation will be a key factor in the construction of the housing market forecast for the period post August 2009 as inflation will erode the value of house prices for many more years, even if there is little change in house prices in nominal terms.
More Analysis of the UK Housing Market:
08 May 2008 - UK House Prices Tumbling- Interest Rate Conundrum
21 Apr 2008 - Bank of England Throws £50 billion of Tax Payers Money at the Banks
17 Apr 2008 - Credit Crisis SCOOP- LIBOR Is Now Irrelevant to Derivatives Pricing
08 Apr 2008 - UK House Prices Plunge Over the Cliff
01 Apr 2008 - How to Fix the Credit Markets
11 Mar 2008 - RICS Data Confirms UK Housing Market Heading for 1990's Style Crash
03 Mar 2008 - Credit Crisis Morphs Into Stagflation- Protect Your Wealth!
26 Feb 2008 - UK House Prices Fall for 5 Months in a Row- Housing Market Will Go Negative April 08
07 Feb 2008 - UK Interest Rates Cut to 5.25% - Will Not Help the Housing Market
21 Dec 2007 - UK Commercial Properties Crash Looms as Property Investment Fund Frozen
07 Dec 2007 - Analysis of Interbank and Base Interest Rate Spread
05 Dec 2007 - UK Home Owners Unable to Refinance Mortgages As Fixed Rates Expire During 2008
02 Dec 2007 - UK Housing Slump Gains Momentum as Properties Fail to Sell at Auction
10th Nov 2007 - Crash in UK House Prices Forecast for April 2008 As Buy to Let Investors Sell on Capital Gains Tax Change
28th Oct 07 - UK House Prices - Primary Reasons For a Sharp Fall
25th Sep 07 - UK Housing Market on Brink of Price Crash - Media Lessons from 1989!
22nd Aug 07 - UK Housing Market Crash of 2007 - 2008 and Steps to Protect Your Wealth
1st May 07 - UK Housing Market Heading for a Property Crash
By Nadeem Walayat
Copyright © 2005-08 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.
As a reminder to readers, the Market Oracle forecast for UK house prices made ahead of the actual peak in the housing market in August 2007 is for a 15% drop over 2 years from August 2007 to August 2009, therefore forecasting a 7% to 7.5% drop for the year 2008.
UK house prices (as measured by the Halifax NSA data) have fallen by 2.2% so far during 2008. Therefore it appears that the CML having proved inept at providing an accurate house price forecast and now appear to have taken the safe route of extrapolating and rounding the price trend this year to the end of 2008 i.e. 2.2% X3 = 6.6% rounded up to 7%. Similarly the Royal Institute of Surveyors (RICS) have revised their forecast lower for 2008 from unchanged to now project a 5% fall.
The article Media Lessons from 1989! presented headlines from the last housing bear market of how forecasts issued by the institutions with a vested interest in the mortgage market, that were lapped up by the mainstream media tended to be grossly inaccurate against the actual outcome. Which is why even as recently as March of this year, many of the chief economist's of the big mortgage providers were still talking up the prospects for the UK housing market suggesting house prices would not fall this year i.e. Britains biggest mortgage bank, the Halifax gave a positive spin on UK House prices in March 08, - "strong underlying fundamentals will continue to support the market throughout 2008". "Over the past year, the average price of a home in the UK has increased by £4,390 to £196,649," he commented. "Whilst the housing market has slowed over the past six months, it is supported by sound economic fundamentals. Interest rate cuts by the Bank of England are also helping to underpin house prices,".
The UK Housing market remains closely on track to fulfil the 2 year forecast for a 15% real terms decline. Beyond August 2009, preliminary analysis suggests that the housing market will continue to be weak with no prospects of real-term gains.
House Prices and Crude Oil Fuelled Stagflation
Crude oil hitting $135 shows signs of the stagflationary environment that the world is entering. Despite the short-term overbought state, crude oil looks set to continue its inexorable trend towards $200 and then beyond, doubling every few years as unrelenting emerging markets demand chases Peak Oil capped supply. The analysis posted just 2 days ago ( Oil Crisis Stagflation Spiral Special ) explained why crude oil fuelled stagflation is going to be with us for many years and warned of a possible imminent price spike from the then $127 to beyond $140, with crude now at above $134 the price spike is well under way.
The consequences of stagflation for the UK housing market is for a rise in even the flawed official CPI inflation measure. The real rate of inflation for the UK is probably at RPI +1% and therefore 5.2%. Under such an increasingly inflationary environment it is difficult for nominal house prices to fall much beyond the forecast 15%, as each year house prices are losing an additional inflation adjusted value of 5% therefore over a 3 year period that may see UK house prices fall by say 18% in nominal-terms, when adjusted for 5% inflation this would imply a real-terms fall of in-excess of 33%.
Therefore the rate of real inflation will be a key factor in the construction of the housing market forecast for the period post August 2009 as inflation will erode the value of house prices for many more years, even if there is little change in house prices in nominal terms.
More Analysis of the UK Housing Market:
08 May 2008 - UK House Prices Tumbling- Interest Rate Conundrum
21 Apr 2008 - Bank of England Throws £50 billion of Tax Payers Money at the Banks
17 Apr 2008 - Credit Crisis SCOOP- LIBOR Is Now Irrelevant to Derivatives Pricing
08 Apr 2008 - UK House Prices Plunge Over the Cliff
01 Apr 2008 - How to Fix the Credit Markets
11 Mar 2008 - RICS Data Confirms UK Housing Market Heading for 1990's Style Crash
03 Mar 2008 - Credit Crisis Morphs Into Stagflation- Protect Your Wealth!
26 Feb 2008 - UK House Prices Fall for 5 Months in a Row- Housing Market Will Go Negative April 08
07 Feb 2008 - UK Interest Rates Cut to 5.25% - Will Not Help the Housing Market
21 Dec 2007 - UK Commercial Properties Crash Looms as Property Investment Fund Frozen
07 Dec 2007 - Analysis of Interbank and Base Interest Rate Spread
05 Dec 2007 - UK Home Owners Unable to Refinance Mortgages As Fixed Rates Expire During 2008
02 Dec 2007 - UK Housing Slump Gains Momentum as Properties Fail to Sell at Auction
10th Nov 2007 - Crash in UK House Prices Forecast for April 2008 As Buy to Let Investors Sell on Capital Gains Tax Change
28th Oct 07 - UK House Prices - Primary Reasons For a Sharp Fall
25th Sep 07 - UK Housing Market on Brink of Price Crash - Media Lessons from 1989!
22nd Aug 07 - UK Housing Market Crash of 2007 - 2008 and Steps to Protect Your Wealth
1st May 07 - UK Housing Market Heading for a Property Crash
By Nadeem Walayat
Copyright © 2005-08 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.
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