This is NOT the bottom of the housing crash

by John Fitzsimons on 12 May 2009  |  41 comments
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New buyer enquiries are up and there are green shoots of recovery for the housing market. But we're not at the bottom yet!

It has been a traumatic 18 months for those working within the property industry. As lending by the banks dried up, sales fell to a near standstill, and estate agents started dropping like flies. Well, every cloud and all that.

Everything must go

However, new figures from the Royal Institution of Chartered Surveyors have revealed housing sales are slowly creeping up again. According to the trade body, surveyors have completed an average of 10.6 sales over the past three months, up from 9.7 in the three months to both March and February.

As a result, the trade body has recorded an improvement - if we dare call it that - in the house price situation, with the balance of surveyors reporting rising prices rather than falls moving from minus 72.1 to minus 59.9 in April. That's right, we're still in minus figures here. Do you detect a few straws being frantically grasped at?

We have reached the stage where even the most farcically minimal improvement in the housing market provokes raised eyebrows and a heart flutter, as if we are finally through the worst.

Those tiny shafts of light

RICS is far from alone in focusing on the positives. When Nationwide Building Society claimed house prices had increased by 0.9% during March, it sparked incredulity that such an astonishing event could possibly have happened. And lo and behold, the very next month a chunk of that increase had been wiped out with a further fall of 0.4%.

The various other indices from outfits like Halifax and Hometrack have been nowhere near as positive, frequently identifying further falls, albeit at a slowing rate.

And then last weekend, the Lloyds Banking Group, the biggest lender in the UK, started suggesting that house prices have only a further 6% to fall before a rise by the end of the year. Have they gone completely crackers? Is this the sort of barmy thinking that led to the HBoS deal in the first place?

Always look on the bright side of life

Or are the boffins at Lloyds on to something? After all, the RICS figures demonstrate the demand is there - new buyer enquiries have increased for six straight months, and at the fastest pace since the heady days of August 1999, when nobody had heard of quantitative easing, toxic debt or Robert Peston.

Meanwhile, Hometrack's most recent survey found that applicant numbers were up 6% in April, and 32% in the last three months.

The thinking seems to be that the sharp fall in house prices, which stands at 18.4% peak-to-trough according to Nationwide, has made property more affordable for our old friends, the first-time buyers. As they see properties begin to fall within the range they bracket as affordable - and according to Halifax, affordability has more than trebled for first-time buyers since mid-2007 - interest picks up and these buyers trundle along to their estate agents to see where they stand.

And so long as those buyers have a healthy looking deposit, and the squeakiest of squeaky clean credit records, they stand a decent chance of getting a mortgage.

In addition, those already on the ladder and with a decent amount of equity in their property are in a position to move onwards and upwards at a better price - and likely with a cheaper mortgage at a small loan-to-value - than they could previously.

Anecdotal evidence seems to suggest this may be happening. My own father, whisper this quietly, is an estate agent and has recently been recruited by a former employer because they are swamped with enquiries and need all hands on deck. And my mortgage broker has started sleeping at night again, thanks to a jump in the number of potential borrowers looking to snap up a bargain.

Building castles in the sky

But that is all it is, anecdotal. We can all go through the various house price indices, and desperately cling on to the vaguest sign of positivity, the merest morsel on which to finally proclaim the market has reached the bottom, and everything will be rosy again.

The Council of Mortgage Lenders got it spot on - and that in itself is something of a miracle - when it described the current situation as 'green shoots with no roots'. There may be the odd artificial improvement in sales or house prices, but there is precious little foundation for a sustained recovery, particularly while the situation with unemployment remains so uncertain.

Because the market is not at the bottom, and it won't be for a while yet. Until the banks and building societies feel able to devote a few more pennies to their mortgage lending, prices are going absolutely nowhere. And all the cautious optimism in the world will not make a jot of difference.

More: Buy-to-let investors are getting what they deserve | Why house prices have further to fall

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