Houses ~ Falls much bigger!!

'House prices to fall until 2010': the options for buyers and sellers
Last Updated: 12:56am BST 11/06/2008
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Homeowners are being warned to brace themselves for three years of falling house prices, writes Paul Farrow
There are signs that tens of thousands of borrowers are already being sucked into negative equity.
Ed Stansfield, at Capital Economics, said: "We had forecast price falls of 8 per cent this year and 10 per cent next year, but the 8 per cent figure is looking very conservative. It is now plausible that prices will fall by 15 per cent in 2008. When it comes to forecasting the direction of prices in 2010 it is a case of reasoning why prices won't fall further rather than the other way around. House prices falls tend to run in years not months."
Mortgage repossessions: how to hang on to your home
Ten tips to get the best price when you sell your home
Surviving negative equity
The gloomy prediction comes as the number of homeowners in danger of falling into negative equity begins to rise. More than 23,000 homeowners took out 100 per cent home loans in the past year – and it is highly likely they are already in negative territory.
Weighed down: homeowners need to be prepared for difficult times in the housing market
The number of houses changing hands has also "collapsed" to the lowest level in 30 years. The fall in sales far exceeds the depths of the last housing crash in the 1990s and is the lowest since records began in 1978. The average number of houses that estate agents sold in the past three months was 17.4 - almost a third lower than a year ago, says the Royal Institution of Chartered Surveyors (RICS).
Miles Shipside at Rightmove said that those that were still looking to sell were being totally unrealistic – new asking prices were, on average still higher than a year ago. "Sellers have to drop their asking price by at least 10 per cent," he said.
Last month, Hometrack, the property research company said that property values had fallen eight months in a row, while Nationwide and Halifax, the two largest mortgage lenders, confirmed that house prices are falling year-on-year.
House sales fall is steepest since the 1970s, says RICS
House prices: News, views and data
RICS UK housing market survey, May 2008 [PDF Format]
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We have canvassed the thoughts of some other leading experts on how far they see prices falling – and what they would do if they were a buyer or a seller during these difficult times.
How far can prices fall and has your forecast changed recently given the ongoing gloom and fall in consumer confidence?
Alun Powell, senior UK economist, HSBC "The recent run of weak housing market statistics, including the very low levels of mortgage approvals for house purchase and falling house prices, has led us to downgrade our forecasts for house price inflation. We now expect that by the end of this year, prices will be 10 per cent lower than they were at the end of 2007. The bigger question is what will happen to house prices in 2009. Our view is that a weakening economy will keep the housing market subdued."
Melanie Bien, director Savills Private Finance "The UK mainstream market will fall 8 per cent this year and 2 per cent in 2009 assuming liquidity pressures ease by the end of the year. The worst case scenario is a 10 per cent fall in average values in 2008 and a further 15 per cent in 2009 taking values back to 2004 levels for UK residential."
Ray Boulger, analyst at John Charcol, the mortgage broker "I have changed a little. I expect prices to fall by about 9 per cent this year but to be recovering by the second half of next year."
Marc Goldberg, head of residential sales, Hamptons International "We have seen prices fall by around 10-15 per cent so far, since the peak of 2007 and it is possible we will see another 5 per cent over the next few months – which will mean a 20 per cent drop since summer 2007."
What would you do if you were a buyer?
Melanie Bien: "If I were a buyer I would find a property I liked and then seriously haggle on the asking price. It's important in a housing market downturn that you don't pay more than you need to, nor overstretch yourself on the mortgage.
"If I were a buyer without a deposit of at least 5 per cent (preferably) or 10 per cent and no likelihood of assistance I would return to old-fashioned values and save for one. Because there is a downturn you won't risk being priced off the ladder while you save and it will widen your options, give you access to a greater number of mortgages at preferential rates."
Mark Goldberg: "Analyse prices carefully. Prices are 15 per cent off the peak of last summer and some vendors have taken advice from their agent on this and adjusted prices accordingly. However, others have ignored the recent changes in the market.
"Ask the agent why the vendor is moving. There are always people moving for genuine reasons and these people are more likely to be realistic than those just looking to cash in on an investment. It is a more relaxed proposition buying in a down-turn though, as buyers can, on the whole, secure the price they want."
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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

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