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Housing market shivers as winter approaches

21/11/2007

The UK`s housing market has somewhat of a reputation. When things go well, they go really well. When things go bad, they are terrible. After a number of years in which the average house price has risen sharply, the signs of change may just be beginning to show.

Over the last few years, predictions from those in the know have all read the same - house prices will increase. The average house is now worth £220,111, according to government figures.

However, now the market predictions vary wildly. A survey by the Department for Communities and Local Government shows that house prices are rising but not as sharply, while the Halifax House Price Index has property values falling by 0.5 per cent in October. Similar comparisons can be made with other surveys.

As a result, consumers are becoming more anxious about their financial commitments. While the interest rate rises have been halted by the Bank of England, they are still having an effect on businesses and, therefore, wages. Some in the industry are predicting that it won`t be long until the labour market forces house prices down.

The Royal Institute of Chartered Surveyors` (Rics) spokesman Ian Perry said: "The housing market is seeing the awaited slowdown that many had been expecting, with modest falls reported across most UK regions.

"A decline in transactions may be in the offing as stalemate returns to the market, although a material fall in prices would require a weaker labour market prompting forced sales"

Reasons for the slowing of the market are put down to the recent credit crunch, which hit financial markets around the world. One major victim of that period was Northern Rock, which is one of the UK`s largest mortgage lenders. A lack of consumer confidence in it and other lenders has made for a rocky road ahead.

Fionnuala Earley, Nationwide building society`s chief economist, commented: "The main reasons for this more subdued outlook lie on the demand side of the market, where a slowing economy, tighter credit conditions, stretched affordability for first-time buyers and lower house price expectations appear likely to reduce the level of activity.

"The supply side of the market will still be characterised by widespread housing shortages, in spite of government targets to increase house building."

Such shortages in housing are likely to keep house prices steady in some areas, at least for the time being. In Scotland, for example, house prices have risen 14.5 per cent in the last year, to an average of £168,559 - some £60,000 less than the UK average. Areas such as Aberdeen have seen an annual rise of 34 per cent. It certainly is not all doom and gloom across the UK.

Professor Donald MacRae, chief economist at Lloyds TSB Scotland, said: "There is no evidence of any crash in Scottish house prices. Rather, the Scottish housing market continues to show robust annual increases in excess of inflation."

There can be too much of a good thing though. Professor MacRae suggests that Scotland bucking the national trend may destabilise the market yet further.

He added: "The increase in Scottish house prices needs to slow. However, this will happen as a gentle slowing in price as opposed to an abrupt fall."

So, a drop in house prices may be needed after all. First-time buyers have seen themselves frozen out of the market, while rent on property has reached an all-time high. According to Halifax`s chief economist Martin Ellis, the economy may even benefit from a price drop.

"The UK economy is in a strong position. Sound market fundamentals, including high levels of employment and a shortage in the number of properties available for sale, will continue to support house prices."

Consumers across the country have, many times before, had to put up with the unpredictability of the housing market. It has a reputation for a reason. However, this time around, the signs are more positive than before. The chills of winter may just be what the house price doctor ordered.

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