Future House Prices - HOUSE

In terms of new builds the Home Builders Federation reported that there had been no real uplift in home sales at the start of the all important autumn period. For the 4 weeks to mid October 2010 reservations were down on prior year comparatives reflecting fewer sales outlets and tight mortgage availability. For the market as whole October's indices were as follows:
Land Registry: -0.2%
Nationwide: -0.7% (3 month figures -1.5%)
Halifax: +1.8% (3 month figures -1.2%)
Hometrack: -0.9%
Data is confusing with indices measuring different geographic regions and different cash/mortgage transactions. Even the chairman of Persimmon has asked for more accurate data and that mortgage lenders should collaborate to produce just one 3 month index which would smooth volatility and be a better measure of underlying trends.
The house price average now lies somewhere between £156K-£167K depending on which index you use. In terms of the South East this is higher at £212K (Oct down 0.3%: Land Registry) and in London £340K (Oct down 0.6%: Land Registry).

Going forward, the hoped for housing recovery has certainly petered out. Confidence is low impacted by poor job security, tax rises, cuts in benefits and mortgage approvals of still less than half their pre-crisis level. As a result new buyer enquiries are falling. The number of homes coming to market is increasing, however, driven largely by the 3Ds (debt, death and divorce) as most other sellers are holding off. Consequently, prices will continue to drift (as opposed to plunge) downwards. This will add to fears that those with large mortgages taken out pre-recession will find themselves in a negative equity situation.

Needless to say different areas will feel the impact to a lesser or greater degree. Central London remains the most shielded in terms of house prices which are still higher than in October 2009. This is due to active cash buyers, less dependence on mainstream mortgages and greater equity. Foreign demand also continues to be high (making up over half the Central London market) although there is now more reliance on buyers from Asia, Russia and the Middle East as opposed to the traditional Europeans who are also feeling the pinch. Despite not benefitting quite as well from the financial bonus situation the outlook remains more upbeat than the rest of the country but further slippages are likely short term. After the usual time lag, London prospects will, as always, spill out to the rest of the South East.
Those in the North will to be more susceptible to changes in interest rates, the availability of mortgage debt and employment prospects. The government's spending cuts are likely to hit hardest in the North with statistically more people employed in public sector roles in this area of the country.
Overall, it remains a buyers' market for all those but first time buyers who are still struggling to raise sufficient deposits. If your home is on the market currently you need to be very realistic if you are to achieve a sale with many agents feeling that asking prices are still 5-10% too high, although good properties in desirable locations will, as always, be snapped up.
Conditions are unlikely to change in the run-up to Christmas and whilst it is possible the Bank of England could step in short-term to support the market by reducing mortgage rates, improving the wholesale funding costs for banks and raising inflation expectations, it would be unwise to hold your breath. Into the New Year interest rates should start to slowly rise again and many lenders are already factoring this into their lending decisions.
In conclusion, the credit crunch will continue to impact on the housing market for a few years to come. No real growth is expected until 2012-13 and this will start in London and the South East with the North being the last to see any consistent positive improvement.
Recently in the news...
· Galliford Try/Linden Homes was crowned Housebuilder of the Year by Housebuilder magazine.
· The Head of the Council for Mortgage Lenders spoke out against FSA proposed regulation saying many mortgages could be restricted in order to prevent only a few defaults.
· Housing Minister Grant Shapps has promised to cut red tape and make it easier to build homes.
· Over £900M has been earmarked to encourage local authorities to build - for every new home the authority will get a bonus equal to at least the annual council tax.
· Housebuilders Bellway, Bovis, Redrow and Galliford Try have all recently reported improved results although the words "encouraged", "cautious" and "frustrated" would perhaps more aptly sum up their status.

Delphine Paterson is an independent business and financial consultant at Forward Financials helping businesses generate more profit, increase cash flow, secure the financial support needed to grow their business and take the risk out of their strategic decisions. She has also made lending decisions within banks, allocated bank credit grades which drive pricing and worked as an industry analyst particularly in the real estate and construction sector. This means she sees business from a lending, financial and industry angle.

Clients include start-ups, owner-managed businesses and larger companies which she helps with bespoke financial modelling, tailored management account systems, business plans and strategic reviews.