All the doom-mongers who predicted that property prices would crash by 25 percent or more are beginning to look a bit silly. They were so busy proclaiming disaster that they forget that the UK housing market doesn’t behave like a normal, rational market.
House prices have an extra layer of protection for the simple reason is that Britons love bricks and mortar and we can’t get enough of it.
Literally. We don’t have anywhere near enough properties to house our rapidly growing population, and we aren’t building new ones fast enough to play catch up.
Ultimately, it comes down to supply and demand. There isn’t enough supply of decent liveable properties in our country, but there is way too much demand.
As a result, prices rise at the first opportunity.
The latest Nationwide house price index showed prices jumped by 0.9 percent in October. That followed a 0.1 percent monthly rise in September.
Analysts had been spreading their usual gloom predicting a 0.4 percent drop. Instead, we got the largest jump since March last year.
Prices have fallen over the last year but only by 3.3 per cent to £259,423. Given soaring borrowing costs, the cost-of-living crisis and shrinking economy, is shouldn’t be happening. Yet it is.
The obvious, rational reason is that mortgage rates have been sliding lately, as lenders calculate that interest rates have peaked.
Few expect the Bank of England to hike today’s 5.25 percent base rate at Thursday’s meeting. Mortgage lenders are slashing rates to win new business in a shrinking market.
There’s another reason prices are rising.
Property sellers have decided that now is a lousy time to sell, so they’re putting it off if they can.
Nationwide’s chief economist Robert Gardner pins the uptick in house prices on the “constrained” supply of properties on the market.
“There is little sign of forced selling, which would exert downward pressure on prices, as labour market conditions are solid and mortgage arrears are at historically low levels.”
Lenders are also under political pressure to go easy on owners who are struggling with their mortgages, rather than swooping to repossess.
Also, they don’t want of seizing properties and auctioning them off, possibly at a potential loss. Better to hang on and see if the borrower can muddle through.
It’s a very different story to the house price crash of the early 1990s, when lenders were much more aggressive.
House prices may be rising but mortgage approvals fell to just 43,300 in October. That’s the lowest since January when the market was still reeling from Calamity Liz Truss’s mini-Budget nightmare and subsequent gilt market crunch.
Property is such a valuable asset that owners are desperate to hang onto theirs at all costs, rather than offloading at a fire sale price.
They’d rather take in a lodger, find a second job, or rent it out.
This is yet more bad news for first-time buyers who were hoping to take advantage of a house price dip to get on the property ladder.
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In one respect, house prices are much cheaper than they were. Wages rose 8.5 percent in the last year, so a 3.3 percent house price drop makes them 11.8 per cent cheaper in real terms.
So we are suffering a house price crash by stealth.
That process looks set to continue next year, as house prices stagnate while wages continue to increase.
So first-time buyers may find they can afford to buy, provided they have a decent job.
Much now depends on where interest rates go next. When we see signs that inflation is under control, lenders will cut mortgage rates again in anticipation of the first base rate cut.
Markets currently reckon it’ll come in the second half of next year, I think we might see it sooner.
Either way, the UK housing market looks bullet proof, unless something extreme happens, like a world war.
At the same time, house prices are getting more affordable, without all the destruction a full-blown crash would bring.
Both look like good news to me. There isn’t much of it about, so it’s worth celebrating.
