AS the government's housing agencies work on the market rescue plan demanded by housing minister Caroline Flint, one consolation is that at least they have some inside knowledge of the market where prices are falling fastest.

New figures from the Nationwide this morning show that prices in Sheffield - the old stomping ground of Homes and Communities Agency chief executive Sir Bob Kerslake - have fallen an amazing 17% in the last year. That gives the city the dubious privilege of topping a league table ahead of Belfast (-11%), Birmingham, Manchester and Coventry (all -9%).

The second quarter figures give the first regional picture of the housing market crash. The Nationwide said prices were down 0.9% in the UK in June, 6.3% in the last year and 7.5% since their peak in October.

Unsurprisingly, given its spectacular price rises in the last two years, Northern Ireland is leading the way down with an 18.6% fall in prices since the second quarter of 2007. Scotland is the only region where prices are still higher than a year ago. Prices fell in Wales and all 10 English regions, with the downturn spreading to London and the South East.  

The big question now is how much further prices will fall. Housebuilders already seem to be factoring in a 15% decline - the amount by which Taylor Wimpey cut the valuation of its landbank yesterday. However, as Brian Green argues in his blog on construction and economics, the problem for them is that nobody really knows when the bottom will be reached.

The Nationwide argues that transactions are the key to house price movements and they are plummeting. Bank of England figures for mortgage approvals yesterday showed they were down 28% between April and May and 64% on a year ago.

Mortgage lenders tend to look on the bright side, so the outlook from chief economist Fionnuala Earley qualifies as distinctly bearish. 'With house purchase transactions so far below their long term trend it seems unlikely that there will be any rapid turnaround in housing market fortunes in the coming months. However, as prices continue to fall affordability measures become more favourable for those in a well financed position to be able to buy.'

Posted by Jules Birch, July 1

Posted in House prices, Housing market, Housebuilding, Homes and Communities Agency

THE first year-on-year fall in house prices since it came to power is hardly the best news for the government on the eve of the local elections but it was all but inevitable.

The Nationwide said a 1.1% fall in prices in April, the sixth successive monthly fall, took the annual rate to -1%, the first time it has gone negative since March 1996. To put that in perspective, if prices continue to fall at the same rate over the next six months as they have over the last six, the annual rate will be -8.6% by October.

While nothing much has changed this month, the news will almost certainly dent buyer confidence still further - especially if, as seems likely, the Halifax reveals a similar picture when it reveals its rival index shortly.

But while house prices get the headlines it is the wider effects of a downturn that are more worrying. After all, even if prices fall by the 30% feared by Bank of England monetary policy committee member David Blanchflower that will only take them back to the level of five years ago. 

The deeper impact could come from the parallells he drew in a speech yesterday between the situation here now and what has happened in the USA. 'Developments in the UK are starting to look eerily similar to those in the US six months or so ago,' he said.

According to his analysis, the US crisis unfolded in four phases - house prices falling from their peak; falls in prices, new home construction and transactions; a decline in average earnings growth leading to a deeper downturn; and the slump in the housing market contaminating the rest of the economy. His conclusion is that we are already in phase 3 in Britain and that phase 4 looked 'entirely plausible' (he is the leading advocate of sharper cuts in interest rates).

The implications of that are far more worrying than today's headlines about house prices falling 1%. And, thanks to section 106, the social sector will feel them too. This downturn could be about more than just negative equity and repossessions.

As I pointed out last week, the progress of sentiment among British housebuilders, from denial that there is a problem to the announcement by Persimmon that it is stopping construction on new sites, is also eerily similar to what happened in the US. And as Inside Housing reports this week, moves like that will hit output of affordable homes, which could fall by up to 25% over the next two years.

Posted by Jules Birch, April 30

Posted in House prices, Social housing, Housebuilding

THE UK'S housing stock is now worth £4,000bn - almost three times as much as our £1,300bn gross domestic product.

The numbers in the Halifax's annual survey of the value of our homes [download word doc here] are truly staggering. But the most significant one is that housing equity has risen quicker than mortgage debt. In 1997, UK homes were worth £1,300bn, three times the level of outstanding mortgage debt (£431bn). In 2007, our $4,000bn homes were worth 3.4 times the level of mortgage debt (£1,200bn). The result is that homeowners are now sitting on housing equity of £2,800bn, up from £870bn in 1997.

That's great news for anyone who has owned their home for that long - it represents a notional profit of more than £100,000 for each of them. It's not bad news for anyone who bought even a year ago - house prices still rose three times faster than mortgage debt in the last 12 months.

For many homeowners the profits only exist on paper but they have nevertheless made homeownership a one-way bet: taking on more debt has guaranteed greater profits. No wonder buy to let has taken off as it has.

The government is another prime beneficiary - thanks to successive increase it made £6.4bn in stamp duty in 2006/07. In 1997 it made just £1.4bn in tax but paid out £2.7bn in mortgage tax relief that has since been scrapped. Net gain: £7.7bn. 

But what about the losers? Current and future first-time buyers are effectively paying for those profits. And it's hard to look much beyond tenants for the really big losers. In the private sector they are lining the pockets of buy-to-let investors and in the social sector they have watched their chances of getting on to the housing ladder soar out of reach.

In its 2001 manifesto, the government promised to 'examine the ways in which tenants can be helped to gain an equity stake in the value of their home'. Nothing has happened since then, but homeowners have gained an average of £75,000 each in housing wealth.

Posted by Jules Birch, Jan 14

Posted in House prices, Stamp duty, Tenants

THE NEW YEAR is the traditional time for pundits and economists to make housing market forecasts that - equally traditionally - turn out to be hopelessly wrong.

Ironically, most pundits got it more right than usual in 2007 - but only because they completely underestimated the continuing strength of the boom in the first half of the year and totally failed to predict the credit crunch in the second.

Most are predicting a standstill or a slight fall in prices in 2008 - but one accompanied by a sharp increase in arrears and repossessions. The Halifax, Nationwide and RICS all forecast a 0% rise and the CML says prices will rise 1%. All these are of course falls in real terms. 

However, all four organisations have a vested interest in playing down fears of price falls. A comprehensive survey of economists in the Financial Times earlier this week found economists much more split on what will happen this year.

Some, like Peter Spencer of the Ernst & Young ITEM Club ('prices flat perhaps edging down') and Diana Choyleva of Lombard Street Research ('Annual house price falls of 3-4% in 2008 are a distinct possibility. But a housing market crash along the lines of the early 1990s is unlikely at this stage') agreed with the lenders and RICS.

Market optimists can also point to figures released by the Land Registry yesterday. Despite the credit problems of the last few months house prices rose by 8.1% in the year to November - three times the rate of inflation.

Against that, there are also some very eminient economists predicting bigger falls:

• Alan Budd: 'A fall of more than 10 % would not surprise me at all'
• Howard Davies: 'I would expect a 10-15% reduction in prices, possibly quite quickly'
• Willem Butler: 'House prices will decline over the next couple of years by 30 per cent or so.'
• Sushil Wadhwani: 'It is quite easy to see a vicious cycle between actual price changes and house price expectations begin to develop.'

If anyone knows what is going to happen, they should. All four are former members of the Bank of England monetary policy committee. 

However, the truth is that nobody really knows for certain because there are too many unknowns. Will prices over-shoot on the way down in the same way they did on the way up? That's down to human psychology. What will buy-to-let investors do in response - will the cut in capital gains tax spark a big sell-off in April? And above all, what will happen in the wider economy? If the credit crunch leads to a recession, then a housing market crash will follow. The consequences of that would reach far beyond headlines about house prices.

Posted in House prices, Housing market

IF THERE'S ONE housing story guaranteed to get almost as much coverage in the national media as soaring house prices it's the idea of a home from IKEA. Today is a day for both.

Just as the Halifax reveals the first fall this year in its house price index and research for Hometrack shows that one in four new buyers cannot afford to get on the housing ladder, potential buyers are flocking to apply for the first IKEA homes in Gateshead. And never mind that no Allen keys or flatpacks are involved, that's the idea that grabs television attention [go here to watch].

The design for the BoKlok home (translation: live smart) is actually the result of a collaboration with Swedish construction giant Skanska. The developer, BoKlok UK, is a joint venure behind Paramount Homes, a subsidiary of Home, and Hyde Housing.  Without IKEA, it would just be one more example of modern methods of construction. With IKEA, it could be getting enough publicity to move the idea into the mainstream.

However, the Gateshead scheme is not without its critics and eagle-eyed readers will notice that the North East saw the biggest fall in house prices in the last three months, according to the Halifax. Meanwhile, the Hometrack data shows that the two least affordable districts in the country for young buyers are at the opposite end of England: the tip of Cornwall.

Posted in House prices, Housebuilding