Has the World Cup hit the housing market?
I still think house prices are due for a fall.
Every week hundreds of press releases arrive in my inbox and most of them are dull, wrong, or stating the obvious.
But one caught my eye this morning. It was headlined World Cup fever stalls UK house sales recovery and was released by a company called Agency Express. This company supplies ‘For Sale’ signs to estate agents.
The release says that the number of UK house sales fell in June by 5.3% compared to May and by 7% compared to a year earlier. Agency Express claims this fall has been caused by wall-to-wall coverage of the World Cup and other sporting events.
Agency Express’s numbers were consistent with Nationwide’s property price figures – also out today – which show that house prices rose by just 0.1% in June, the smallest monthly rise since February.
So has the World Cup affected house prices?
Possibly, although I would point out that many house sales completed in June will have started with viewings in April or May before the World Cup began. My suspicion is that an increasing awareness of our bleak economic situation also accounts for some of the sales decline.
What about the future?
I’ve said for some time that I expected house prices to fall this year and so far that hasn’t happened. In fact, Nationwide’s release this morning showed that UK prices are now less than 8% away from their all-time high in 2007. (In London, they’re only 4% off their all-time high!) So my track record as a soothsayer is less than perfect.
And you could argue that George Osborne’s emergency budget has reduced the chances of house price falls this year. That’s because the fiscal tightening (higher taxes, less government spending) could allow the Bank of England to keep interest rates lower for longer (a lax monetary policy.) And those lower interest rates could push prices higher.
However, I believe that house prices will fall sooner or later. If not in 2010, then 2011. There are lots of reasons for this, but I’m going to focus on three:
- a change of mood. My feeling is that the austerity budget has changed the mood in the country. Yes, it may have enabled the Bank of England to keep interest rates low for longer, but it’s also made people realise that times are going to be tough for several years to come. Why would you want to buy property when prices aren’t far off their all time high even though no one’s job is safe and we’re all set to pay higher taxes.
- Banks are still fragile. Yes, it’s easier to get a mortgage now than it was a year ago but the banks are still very fragile. I’d be surprised if mortgage availability increased much over the next year.
- Mortgage market prop will be removed – When the crisis was at its peak the Bank of England and the government introduced schemes that would give the banks cash to lend out to homebuyers. Those schemes are due to start being wound down next year. If these schemes aren’t replaced at all, expect to see carnage in the housing market.
More likely, the schemes will be replaced by less generous support measures which will force the banks to be less generous when it comes to lending.