Why are people expecting the housing market to continue to fall this year?

Is it due to lack of lending, the economy and jobs market, combination of factors? If it is primarily due to lending can the BoE do something to help?

Asked by Willie Beaman

4 Answers

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Answered by Darren Smith, IFA in Basingstoke, HAMPSHIRE
the value of property is partly influenced by supply/demand/desire.

some people feel that property is still overvalued and should fall by as much as 30% or more to enable people to purchase based on more traditional lending multiples of 3x single or 2.5x joint income.

although there might be some truth in this, i think the rationale is somewhat flawed.

lenders are lending more cautiously, sometimes overly cautiously, but the sector of the market most impeded is the 75%> ltv as these pose additional risk to lenders and so they want to restrict their lending to what they consider to be deserving cases (sometimes restricted to existing borrowers only and no FTBs).

liquidity in the market is not as good as it was at its peak but its better than when it was at its low.

The BoE cannot force lenders to lend, frivolous lending (and borrowing) is in part to blame for the state we are in now and for as much as people rant about bankers being overpaid, they never moaned about that whilst the times were good, and they also forget that they borrowed the money, spent the money, had no means of repaying the money and never took precautions to safeguard their income in the event of a financial catastrophe.

i'm not defending bankers per se, but we have to remember that the banks didnt spend the money, they lent it, "we" spent it, some wisely but most foolishly.

we also have a glut of new build properties because the last government forced local authorities to build ridiculous numbers of new builds (by granting permission to the developers) the problems here are that the building standards are not the same as they were in the past when to own a new home was like a stamp of approval (how many tv shows now show "homes from hell")

new developments also imposed a % of property to be used for social housing - which was not the case in the past, without being a snob many people now dont wish to spend their hard earned cash buying a nice new home to find out their nextdoor neighbour is a rehoused council home evictee with out of control kids and all the other bad habits.

even setting all this aside, too many flats were built in inappropriate locations, the upshot is that many towns and cities now have vast numbers of vacant flats that no one wants to buy now (and clearly didnt then either) but you can build more high rise flats that you can terraced houses on the same plot and all of today's lifestyle tv seems to centre on kids, gardens, animals etc which dont tend to fall into the flat owning community.

most of this is just my take on things but i am sure that others will have their thoughts and experiences to share too! | 01.17.11 @ 17:55
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$commenter.renderDisplayableName() — {comment} | 08.20.17 @ 06:06
Answered by D C, IFA in Bristol, DEVON
You know, I think you have answered part of this question yourself! The house market is, like all sales environments, subject to supply and demand, but it is much more complicated than that. Affordability of property, which is measured by how many times an average income is the average house price, is fairly high at the moment - so people don't have a lot of leeway, and houses are hence regarded as 'expensive' - this is partly why some people think that house prices may (and I stress may) fall further. I do not anticipate any imminent crash, though, I my personal view is that further falls will be relatively gentle and mild, with sharper falls certainly not out of the question.

But who really knows what is going to happen to the economy? The fiscal tightening that has been going on will soon start to bite pretty hard, and an increase in both unemployment and living costs is hardly likely to encourage anyone to buy a house or trade up. Apart from factors which might actually prevent people from buying, the real issue is sentiment, which is the fundamental factor affecting all asset valuations. If people don't buy, because they are scared that house prices might fall, or scared that they could lose their job, or scared that prices are rising, then there will be a definite downward pressure on house prices, then that downward price is a prophecy likely to be fulfilled.

Lack of lending caused by strict lending criteria do not help, but mortgage conditions have eased a little recently, with smaller deposits being required, though it is still very difficult for the first time buyer. Nevertheless, although a factor, I think my previous points are of greater significance. And, no, the BoE can do nothing. It does not have a remit to buoy up house prices anyway, and if it did, the only possible action it could take would be to drop base rate. I cannot see any likelihood whatever of a base rate lower than the current 0.5%, but I really would like lenders to be more 'first-time buyer friendly', which could make a vast difference to individuals and the economy as a whole. | 01.17.11 @ 18:07
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$commenter.renderDisplayableName() — {comment} | 08.20.17 @ 06:06
Answered by Paul Ross DipPFS CII(MP&ER), IFA in Bourne, LINCOLNSHIRE
As already mentioned by Darren & David, it is for the following reasons:

1) Too much supply and not enough demand
2) Poor confidence in the economy and the uncertainty in the foreseeable future
3) Many people are paying down their debt and not looking to move at present, having overborrowed before. The UK is the most debted nation in the world
4) Thereis a huge fear of the possibility of further unemployment, especially in the public sector
5) Unemployment in the public sector has a knock on effect to the private sector
6) Peoples wages aren't increasing. The latest report to Nov 2010, I viewed today, said that wages have gone down 0.05% in the past year and prices have gone up 7.95%. Food, utilities and fuel are shooting up and people do not want to take risks

To answer your question about the BoE, even though we are looking for scapegoats, their hands are tied. I went to a seminar this week hosted by the Chief Economist of the Evening Standard and he said that inflation is expected to go up to 5%, growth in the economy to be 3% and interest rates to remain low. This needs to be low as no plaudits will be won if interest rates are raised, as businesses will struggle and house prices will go down further

Obvious as it seems, the scapegoats are Labour, who in 2008 -2009, spent £155bn more than they collected in taxes. Sorry to get political, but thats where the problem lies | 01.17.11 @ 19:51
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$commenter.renderDisplayableName() — {comment} | 08.20.17 @ 06:06
Answered by Richard Salter, IFA in Trowbridge, WILTSHIRE
Government cuts will especially impact on cities such as Newcastle, Liverpool, Nottingham and Sheffield where many civil servants work. These cuts combined with increasing taxation and a cut in benefits are leading to a general reigning in of spending. Wages are not rising much either.

With less to spend and no 'feel good factor' expectations are for the housing market to continue to hesitate if not fall. Some commentators also reckon that house prices are already too high after such strong growth for the last decade - much of which was pumped up by loose credit controls. Once credit is tightened then demand will be curtailed.

Apparently as much as one third of all house transactions are usually to first time buyers. If they cannot get a mortgage or do not want to take the risks of uncertain employment, rising mortgage costs and bigger deposits then there will be no-one in the purchasing chain to start the ball rolling. Chains will not get off the ground – if you need to sell to buy another home!

This may all seem very doom and gloom and does need to be balanced by the age old arguments of supply and demand and the given that it is far cheaper to buy than to rent for the rest of ones life! However a home purchase nowadays should be (as always) about a HOME rather than an investment. If investment returns also come through then you get a double benefit! At the moment rental yields are increasing as many are preferring to rent than to buy – driving up demand. You do not get both rising house prices and rising rents at the same time. At some point his will tip but many feel this may only occur when house prices have fallen – or at least stayed static for some time……..
| 01.18.11 @ 15:46
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$commenter.renderDisplayableName() — {comment} | 08.20.17 @ 06:06
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Answered by

Darren Smith
Darren Smith, IFA in Basingstoke, HAMPSHIRE

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