Up or down? - 18 May 2009

Posted by Paul Collins No comments

The UK property market is becoming increasingly difficult to predict for experts, investors and journalists alike – conflicting sets of data are being produced on an almost daily basis which suggest in turns that a recovery is ready to happen; is still some way off; is already happening or may not happen at all.

Not only does this bring into question the very usefulness of releasing statistics in the first place (particularly if those figures are accompanied by a ready-made interpretation of what they mean), but they could also be said to have discernable effect on the state of the market itself. In some cases, surveys and their findings can turn into self-fulfilling prophecy. Take for example the end of 2008, when numerous surveys of consumers said that confidence in the property market was running it historically low levels. Reading that over cornflakes in the morning will have made many people less optimistic about property than they were beforehand, therefore decreasing confidence in the market.

The most recent contradictions in surveys have to do with house prices and repossessions. Thursday last week saw the announcement of the highest levels of home repossessions for many years, indicating just how tough many people are finding it to keep up repayments on their current mortgage deals. The Council of Mortgage Lenders, who released the figures, indicated that the rise in repossessions was likely to slow towards the end of 2009 as in the property markets began to be felt. However, even this ray of sunshine has been clouded now, and the CML has revised its prediction. This gloomy prediction shows that the perilous state of the housing market is likely to endure for the rest of this year – after all, if more homeowners are suffering from repossession problems, they will be unable to buy or sell property, prolonging the inertia that is stifling the market at the present time.

Today has seen the announcement of a rise in property prices for the fourth month in a row, which would tend to indicate that the property market is showing true signs of some form of recovery. If prices are rising, there must at least be a perception of an improvement in market conditions and consumer confidence. Sellers must feel that there are enough buyers out there that there will be some competition for their property and they can justify putting their price up a little.

Now, this is not necessarily a true reflection of the property market, but if sellers were being unrealistic about the price of their property, the rise in prices would not be sustainable across the whole first third of this year. The true picture will be revealed when the data for the numbers of registered property transactions is released, but I would be surprised if this were not to show an increase in the buying and selling of property across the same period.

So which set of figures should we believe? Predictably, both could be accurate. While repossessions rise, they can be seen more as a reflection of the past follies of our mortgage lenders in granting people loans were too generous and which they are struggling to pay back. Repossessions also reflect the state of the wider economy, and often result from the main wage-earner in a household losing their job.

House prices are a more immediate indicator of the market conditions – with historically-low interest rates, those who can find mortgages are doing so at the moment to take advantage of the prevailing rates. Combine this with efforts being made to attract first-time buyers (especially those with substantial deposits) and a perception amongst buyers that they can grab a bargain as the market nears its bottom, and it isn’t too surprising that prices are creeping up.

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