residential letting & property management
Phil Spencer's
Property Predictions
News MARKET COMMENT - NOVEMBER 2008 |
The correction in the housing market continues to unfold with unprecedented speed. This month has seen co-ordinated government measures to inject capital into the banking sector and provide long-term liquidity to the financial system. This should hopefully stabilise an extremely fragile situation, but is not expected to prevent a period of falling economic growth. The construction sector is already in recession having suffered falling output in two consecutive quarters. GDP fell 0.5% in Q3 and we expect a similar fall in Q4 to confirm that the economy is officially in recession. |
Inflation was the barrier that had been preventing the MPC from cutting interest rates to support the economy. But with the economic outlook having deteriorated dramatically and inflation more certain to fall as a result, interest rates were cut by 0.5% in October. Further cuts are expected from the Bank of England before the end of the year and rates are rumoured to fall as far as 2%, possibly even lower in 2009.
However, given widespread expectations that the correction has further to run, many potential buyers are biding their time before entering the market. Transaction levels stood at 746,000 as at the end of September – this is 41% lower than the first 9 months of 2007. In September transactions were 54% lower than a year earlier.
| Nobody can know how long this is all going to take to turn around and we should be highly speculative of anyone who claims to be able to do so. At Garrington, our best guess is that prices have another 10% - 15% to fall, but that the market should have stabilised towards the end of 2009. Consequently many people will find themselves in a ‘negative equity’ situation and should attempt to recognise that whilst it might not ‘feel very nice’ if a home is worth less than was paid for it, or worse, less than the money owed on it – so long as the monthly repayments remain affordable and owners are not forced into selling – negative equity doesn’t actually come home to roost. |
| Having said this, a rise in unemployment is certain during the months ahead. Given that falling house prices will have either reduced, or removed, equity cushions that many people had in their homes – a rise in the numbers of unemployed homeowners, will surely bring with it a rise in forced selling and repossession across all price brackets. It will be a difficult time. |
| On the positive side, the mortgage market will be improving and interest rates will be dropping. I suspect prices will start to stabilise during Q3 2009, but that concern over the economy and the hangover of reduced lending from the banks will keep a lid on activity levels until 2010. Considering how the total numbers of transactions have practically halved over the last two years, it is not unreasonable to conclude there are already upwards of 1 million people living in homes they ideally would have liked to have moved out of. From which I assume that once the market returns, these buyers will immediately plan to move home. As soon as liquidity, as well as confidence, both turn positive, then there is a chance that we could see a significant bounce. PHIL SPENCER GARRINGTON 4th November 2008 |
PHIL SPENCER
Phil Spencer is Chief Executive of Property Search Consultancy Garrington. Sourcing and acquiring the finest properties in the UK and Europe. He also presents Channel 4's property search programs, Location and Relocation. www.garrington.co.uk Tel: 020 7376 6780
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