Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

UK House Prices Remain stubbornly Robust Despite Weakening Demand

Housing-Market / UK Housing Oct 31, 2007 - 03:56 PM GMT

By: Nationwide

Housing-Market

  • Best Financial Markets Analysis ArticleHouse prices rose strongly in October, but underlying market activity is clearly slowing
  • Although demand is weakening, existing homeowners appear in no rush to sell
  • New buy-to-let landlords will need a long investment horizon to realise good returns

Headlines October 2007 September 2007
Monthly index * Q1 '93 = 100 372.7 368.7
Monthly change* 1.1 0.7%
Annual change 9.7% 9.0%
Average price £186,044 £184,723

* seasonally adjusted

Commenting on the figures Fionnuala Earley, Nationwide's Chief Economist, said: “House prices recorded a surprisingly strong increase of 1.1% in October, tying it with June for the highest month-on-month growth rate so far in 2007. The average price of a typical UK property was £186,044 in October, £16,421 more than the same month last year. The annual rate of price growth picked up from 9.0% in September to 9.7%, but this is still down from a peak of 11.1% in June and was partly driven by base effects. The rise in the annual rate temporarily breaks the slowing in price growth we have seen since June, but is unlikely to mark the start of a new upward trend. November and December saw particularly robust gains in 2006, and unless prices perform very strongly for the rest of this year, the annual rate of price growth will resume a downward path. The 3-month on 3-month rate of price growth – which helps smooth monthly volatility – edged up only modestly from 1.7% to 1.9%, which is still below the average of 2.2% seen so far in 2007."

Strength of house prices masks weakening of market activity

“While some may be tempted to interpret October’s numbers as a sign that house prices are immune to deteriorating affordability and tightening credit conditions, such a conclusion would be misguided. Most leading indicators of housing market activity are continuing to weaken. Surveyors are reporting the weakest levels of new buyer inquiries in many years and mortgage approvals are falling from recent highs amid weaker demand and tighter lending criteria for riskier borrowers. Slowing demand, however, will not have an immediate impact on prices if homeowners are in no rush to sell.

New instructions to sell have in fact been falling since May, when there had been a temporary surge of property onto the market. Different factors could be driving the low level of instructions, including a reluctance to trade up amid current uncertainties and the fact that low unemployment is limiting the number of forced sales. The overall result is that the stock of unsold homes is still relatively low, and this is providing some residual support to prices. The underlying dynamics of the market, however, are clearly not as strong as this time last year.

IMF report on overvaluation raises important issues, but undersupply cannot be ignored

“Recent analysis from the IMF on housing markets in the industrialised world has added to the debate about housing overvaluation. In its latest World Economic Outlook, the IMF concluded that a substantial proportion of UK house price gains over the last decade could not be entirely explained by income growth, interest rates,
credit growth and the working-age population. However, this estimate of overvaluation will not account forother key drivers such as the housing supply. A simple comparison shows that investment in residential construction accounts for a much smaller share of the economy in the UK than elsewhere, despite the fact that the population has been growing strongly and is projected to continue doing so. As the NHPAU reminds us, the UK’s unresponsive housing supply has been instrumental in driving house prices and affordability ratios to current levels.1

“Nonetheless, the IMF findings serve as a reminder that UK house prices have risen ahead of certain key fundamentals – particularly earnings. This finding is indisputable, but it does not mean that house prices are destined to fall. In fact, in the absence of an early 1990s-style shock to unemployment or interest rates, they are
unlikely to do so. Yet, unless interest rates fall back to the lows of 2003, house prices will need to rise at a slower pace than earnings over the medium-term in order to bring housing affordability back to historical norms. As a result, homeowners may well need to content themselves with less spectacular returns on their houses over the next decade.

New buy-to-let investors may need more patience to realise good returns

“Lower house price inflation may have especially strong implications for aspiring buy-to-let investors. Landlords who entered the buy-to-let sector near the start of the decade have made enormous returns. But strong house price growth relative to rents has pushed net rental yields well below the current cost of a mortgage. This implies that without very strong capital gains, a new entrant into the market would make negative total returns in the short term until rents caught up sufficiently to cover operating and mortgage expenses. There is now evidence that after several years of weakness, private sector rents are growing more robustly. Even so, rents would have to rise very strongly relative to house prices to make short-term buy-tolet investments profitable at current
interest rates.

“That being said, investors with long horizons can still make satisfactory returns if long-term historical trends for house prices and rents hold up. The government’s latest projections show that the 15-34 year old population will be increasing until the middle of the next decade, and this should be supportive of both tenant demand and rents. Even with only modest house price inflation, these conditions would produce relatively healthy returns over a 10-15 year horizon.

Fionnuala Earley
Chief Economist
Tel: 01793 656370
Mobile: 07985 928029
fionnuala.earley@nationwide.co.uk
Kate Cremin
Press Officer
Tel: 01793 656517
kate.cremin@nationwide.co.uk

1 Based on officially published average mortgage rates in August, an owner of a typical semi-detached property who took out a 75% LTV 2-year fixed rate loan in 2005 would have faced a payment shock of approximately £100. If one assumes that only half the decrease in swap rates between the end of August and today is passed on, the payment shock for this borrower would fall to £90.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in