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Stunning house price fall in September

Ed Bowsher
by Lovemoney Staff Ed Bowsher on 07 October 2010  |  Comments 8 comments

House prices dropped by 3.6% in September. I expect prices to carry on falling in 2011.

Making house price forecasts is a dangerous game. Events can easily prove you wrong. In fact, my friend Neil Faulkner thinks house price forecasts are pointless.

But heck, a year ago I said that house prices would fall in 2010, and so far at least, I’ve been proven right. So I’m going to shout about it!

Halifax published the latest instalment of its monthly house price index today and the figure for September was stunningly high. House prices have fallen 3.6% in just one month! Since January, they’ve fallen 4.4%.

Now I should admit that the quarterly fall was much more modest at 0.9% and September will probably prove to be a blip in terms of the size – but not the direction - of the monthly fall. However, my strong belief is that we’re going to see a downwards trend over the next year. I think there are four main reasons for this:

-          I suspect people still haven’t realised quite how tough the government’s austerity programme is going to be. Job losses, pay cuts and declining consumer confidence is bound to push down prices.

-          Interest rates may start to edge up next year. Families who have been able to just keep afloat thanks to a 0.5% base rate may have to sell if rates rise.

-          The mortgage market will remain tight.

-          The house price/earnings ratio still looks high at 4.56. In other words, the average house is worth 4.56 times the average annual wage for full time male employees. The long-term average is more like 3.5.

I know that I’ll get stick for daring to mention the house price/earnings ratio. I’m often told that it’s an obsolete metric because it doesn’t reflect the increased participation of women in the workforce. There’s something in that view but the ratio is a nice, simple way of looking at affordability. What’s more, I think it passes the ‘does it make sense?’ test. It’s very hard for youngsters to afford a home – that means that house prices aren’t sufficiently affordable.

Prepare for further falls.... 

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Comments (8)

  • Aquasponge
    Love rating 38
    Aquasponge said

    Agreed but how far and over what time period?

    We now have BTL landlords openly stating not to enter the market unless you have at least a 30% deposit to protect yourself....and things haven’t even started to get ugly.

    Report on 08 October 2010  |  Love thisLove  0 loves
  • nickpike
    Love rating 270
    nickpike said

    My prediction was always 50% off peak (Aug 2007).

    If prices are falling (and a record monthly fall) with 0.5% interst rates, the house market must be in a terrible state.

    They've dropped 50% in Ireland, Portugal, Spain and the USA, and it will happen here.

    Report on 10 October 2010  |  Love thisLove  0 loves
  • Canny Saver
    Love rating 2
    Canny Saver said

    To be honest, anyone who can see further than the end of their nose knew house prices were bound to fall. They've been more resilient than many people had expected, boosted mainly by the artifically low base rate, but with the deficit disaster and inevitable cuts that were going to result in tough times ahead these always meant a weakening housing market translating through to a reduction in values.

    The recession has passed leaving the housing market in a much stronger position that I, for one, expected. But only half the country was in recession - the private sector. The Government kept on spending to avoid a complete meltdown and now they have to recover that spending spree meaning that the second half of the recession is now getting underway - the public sector which will inevitably impact upon private sector suppliers too.

    I always expected house values in 2010 to finish 10% lower than they started the year. They did start the year very bullish and still have some way to fall for that prediction to be realised but I think, if anything, my time period is all that is wrong - not the fall. It may extend through to the first half of next year after the spending review finally makes its impact after which it should plateau over the rest of 2011.

    Even prime central London has plateaued so that must mean falls should be expected elsewhere. I think 2011 will see prices back to 2009 levels. The falls of 2008 I think could now have been avoided but if they don't fall by more than 10% they wont rise again for several years to come.

    It amazes me how few people have any idea about the MMR and the catastrophic effects this will have on boroowing with its inevitable consequences for the housing market. The housing market is susceptible to so many things and failure to acknowledge any/all of these is very misleading.

    I suspect a great time to buy will be late spring/summer 2011.....

    Report on 10 October 2010  |  Love thisLove  0 loves
  • houstonstewart
    Love rating 24
    houstonstewart said

    It always amazes me how many people want to over estimate the value of the huge array of statistics chucked out about 'house prices' and they are usually from the people who want to talk the market down i.e. 'The Cliff D'Arcy Church of Gloom and Despair, holier than thou lot'. Any kind of negative report from the likes of any snotty nosed, live at home and depend on the likes of the Bank of Mum and Dad type can produce a report and the D'arcy Church lot go into a fit of salivation of 'Oh look at me, I was the clever one, I always said it would happen blah, blah, blah'.

    The simple truth is the main thing that drives house buyers decisions are based on the subjective not the objective reasoning when buying a house/home and still is!. What took us to to the state of affairs for property price increase was the ridiculous ease of obtaining a mortgage. The world and his dog wanted (and still does) to own their own home (and what's wrong with that?) and 'soft' irresponsible mortgages fuelled that want and subsequent houseprice hikes.

    Now the mortgage pendulum has swung way to far the other way, their cost above base rate, their hideous charges/fees, over cooked desire for huge deposits and now over selective about the borrowers - all built for the mortgage companies profits and protection but under the guise of protecting ourselves from our own greed.

    The housing market will turn again but only when mortgages become more or less attractive and available. The bottom line is yes a few will react based upon this or that report, or that because its raining on a Tuesday its a good reason not to buy or to buy but the vast majority couldn't give a stuff about them. They 'fall in love' with a property &/or the idea of independence &/or moving up or whatever but all subjective motives and their first thought is can I afford it if I can get a mortgage. So mortgages are the key NOT reports.

    I've no doubt the 'D'Arcy Church' group are spluttering into their coffee reading such blaspheme and my name smited at their altar of the Holy Grail of doom and gloom - go on be my guest, 'knock yourselves out!'

    Report on 10 October 2010  |  Love thisLove  0 loves
  • Aquasponge
    Love rating 38
    Aquasponge said

    Canny Saver - some wise words. I’m broadly on the same page and agree that anyone who could see past their own ego could see at least some of the failings within the housing market.

     Personally I didn’t see base rates at a 400 year low and kept so low for so long. These very low rates have delayed (not postponed) judgement day for many.

    I thought the West would have done a lot more against China directly with harder action and stronger words against their currency manipulation. We are starting to see this now but the past three years “too soft” approach will have consequences. With developed countries (Yen, Won) and developing countries (Real, Baht etc.) now racing with the USD and Sterling to the bottom who knows what the outcome will be. Throw in some state protectionism from the US down and we have a very difficult situation developing. In fact, protectionism has historically put fragile economies in a deeper and more prolonged crisis ...

    The US stock market topped in 1929 and fell 45 percent in just three months. Then, it had a sharp correction, recovering 47 percent from the November ‘29 low.

    In June 1930, two U.S. Congressmen, Smoot and Hawley, championed a bill to slap a tariff on virtually every foreign good.  That was the catalyst for the second leg down ... a massive plunge in the stock market and arguably the catalyst.

    In summary my time frame is longer than yours; I feel that spring/summer 2011 is too soon as much needs to be washed out before steady growth in the housing market can begin. I’m at least a year behind you and currently pointing to early/spring 2012. Recessions are efficient tools for changing individuals perception of reality.  

    Report on 10 October 2010  |  Love thisLove  0 loves
  • Canny Saver
    Love rating 2
    Canny Saver said

    Aquasponge - thanks for the comments.

    I agree wholeheartedly. In terms of timeline, you may well be right as I have continued to extend mine from my original expectations as events roll on. This historically low base rent is not only lower than anyone expected but is continuing for far longer than anyone could have anticipated and I agree that it is merely postponing the inevitable, not avoiding it.

    I suspect the middle of next year may remain the bottom of a housing dip but that we will simply bounce along at the same level with next to no growth for some time to come afterwards. If it will continue to fall for longer as you suspect we ill be experiencing some very tough times indeed.

    All the issues you raise will need to work their way through the system before any more "positive" market conditions return (and I say this from only one perspective knowing that many do not see high house values as a good thing).

    Report on 11 October 2010  |  Love thisLove  0 loves
  • Ed Bowsher
    Love rating 79
    Ed Bowsher said

    Hello everyone,

    This comment made me smile.

    "To be honest, anyone who can see further than the end of their nose knew house prices were bound to fall."

    Not everyone predicted falling prices this year. Check out this article:

    http://monevator.com/2010/01/19/uk-house-price-predictions-2010/

    That said, I'm not claiming to be a forecasting genius. I may have just got lucky. And by linking to an old article by Neil Faulkner I was trying to indicate that I understood that forecasts may not be that worthwhile.

    Regards,

    Ed

    Report on 11 October 2010  |  Love thisLove  0 loves
  • Eastwood
    Love rating 0
    Eastwood said

    I cant believe how left wing the editorial comment is from lovemoney!!

    Editorial comment is ridiculously more doom and gloom even than the BBC!!

    No mention of the 11% growth in the construction industry largest since 1988 I work for a national builders merchant and we are flying twice last years profit!!

    Of course no mention of that yesterdays figures NOT A MENTION!!! Doom and Gloom next years cuts more RED than ED!!

    A Recession is a lack of confidence the BBC and LOVEMONEY are fueling that lack of confidence because of left wing political bias!!!

    Outrageous!!!

    Report on 27 October 2010  |  Love thisLove  0 loves

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