Be Patient and wait before buying a house.....

Housebuyers may have to wait a year for better market conditions, say economists

David Budworth


Homeowners hoping for a revival in the housing market could have to wait at least another year, economists have warned, as rising unemployment, a squeeze on household finances and problems in the mortgage market continue to exert pressure on prices.
Economists have cautioned that it is too early to say that the market, which has already fallen about 20 per cent, has turned a corner. Most are sticking to forecasts of a 25 to 35 per cent drop in prices from top to bottom. They think monthly mortgage approvals must double to 70,000-80,000 before prices can stabilise or start to rise.
A barrier to that scenario is the continued shortage of good mortgage deals, especially for first-time buyers. At present, homebuyers with a deposit of less than 40 per cent are excluded from the most competitive deals, while good loans for those with a deposit of 10 per cent or less have all but vanished in recent months.
Easter traditionally marks the peak time for house sales and before this year's holiday there have been tentative signs that the property market is awakening. Nationwide Building Society said house prices rose 0.9 per cent last month, the first increase since 2007. A separate, closely watched survey from the Bank of England showed mortgage approvals jumped 20 per cent in February to 37,937, the highest level since May 2008.

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Adding to the more positive mood, the Halifax index for the first quarter of this year showed the smallest quarter-on-quarter fall in prices since the first quarter of last year. Meanwhile the Royal Institution of Chartered Surveyors (RICS) said that interest from potential buyers rose for the fourth month in a row during February.
But Howard Archer, chief UK and European economist at IHS Global Insight, thinks house prices will not bottom out until mid-2010, by which point they will be 15 per cent lower, at mid-2003 levels.
He said: “Housing market activity is still very low by long-term norms and any pick up in activity over the coming months is likely to be gradual and fitful. Soaring unemployment, muted wage growth and unwillingness of many people to commit to buying a house when they are fearful are likely to continue to weigh the market down.”
Jeremy Leaf, of RICS, said: “Potential buyers continue to come through estate agency doors but without mortgage finance, transaction levels are likely to remain close to all time lows. Worryingly, the lengthy process of obtaining a mortgage, even for those with big deposits, is contributing towards the blockage in the market.”
That could begin to change after HSBC unveiled a 4.99 per cent deal for borrowers with a 10 per cent deposit. A survey from the Bank of England showed that banks and building societies expected to lend more to homebuyers over the next three months. However, this has yet to be seen.
There is evidence that cash buyers have started dipping their toes back in the market. This perhaps explains why new buyer enquiries have been strongest in London and the South East, areas popular with the sort of wealthy buyer with money to spend. Cash sales now account for 40 per cent of transactions as some older, richer buyers turn to property as a more lucrative alternative to low-paying deposit accounts.
However, the critical state of the economy, which is expected to remain in recession until next year, means that even buyers who are convinced that property is cheap are treading warily. Unemployment recently hit 2 million, and some analysts think it could climb to 3.3 million next year, the highest level since official records began in the 1970s.
Household budgets also remained under pressure as food prices have continued to rise. Even though housing affordability is improving it it still not back to the levels at the bottom of the last downturn.
Roger Bootle of Capital Economics said: “There is little evidence that the rise in buyer interest is feeding into sales activity. House prices will fall further.”

Green Shoots ~ not even a Glimmer!

April 10, 2009
Don't be fooled by 'green shoots' in housing market
There is still some way to go before house prices stabilise and we are a very long way from a recovery
Andrew Ellson


Facts, Mark Twain once observed, are stubborn things. But statistics, he noted, are more pliable. It is with this caution that we should observe the latest data on the housing market.
Last week Nationwide reported that house prices rose by 0.9 per cent in March. The Bank of England, meanwhile, said that mortgage approvals jumped 19 per cent in February. Some commentators, including the Centre for Economics and Business Research, interpreted these statistics as evidence that the housing market is near the bottom. The same commentators even put a positive spin on separate figures from the Halifax showing that prices actually fell 1.9 per cent on the month - an annualised rate of 25 per cent - by arguing that at least the pace of decline was slowing.
The truth, sadly, is that we still have some way to go before house prices stabilise and we are a very long way from a recovery.
Apart from the folly of looking at a single month's statistics in isolation, it should be noted that the Nationwide and Halifax measures are no longer as reliable because the volume of home sales has fallen so much. Neither lender will reveal exactly how many customers their figures are based on, but the Land Registry reports that property transactions are down about 60 per cent on their long-term average, suggesting that the sample size of both surveys has reduced significantly. As any statistician will tell, you, the lower the sample size, the greater the chance of error.


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Given that the customer base of each lender is also geographically skewed - with the Halifax traditionally lending more in the North and Nationwide in the South - the figures are far from a reliable indicator of what is happening in any one town. Perhaps a better reflection of the state of the housing market are the figures from Hometrack that show that vendors are receiving an average of only 88 per cent of asking prices and that it takes a record three months to sell a home.
Nor should anyone be fooled into thinking that a recovery is imminent because of what appears to be a large increase in lending. The total number of mortgage approvals may have risen by 19 per cent in February, to 37,937, but this was from a low of 31,791 and is still 44 per cent down on a year ago and 67 per cent down on the year before that. Lending still needs to increase substantially before there is a positive impact on house prices, and that is before rising unemployment is taken into account.
That is not to say that there are no positive signs. As we report on page 74, a number of banks, including HSBC, Abbey and RBS, have slowly started loosening their lending criteria by reducing the size of deposits needed to qualify for loans. Though these developments reflect lenders' growing confidence in the housing market, they should be viewed in perspective. With the notable exception of the HSBC deal, the rates remain prohibitively high and first-time buyers would still need to raise an average deposit of more than £15,000. Even the HSBC deal has a series of tough conditions attached that make the loan more attractive to higher earners. The bank knows that these borrowers are better placed to cope if house prices fall farther, so the deal is hardly a huge vote of confidence in the housing market.
Buyers must still beware.
Pension savers can ill-afford another blow
Would you accept a cut in your employer's pension contributions to save your job? The answer, most likely, is yes. Sadly, increasing numbers of workers could soon face such a demand as companies try to cut costs as the recession bites.
Employees of Aon, the insurer, became the first to suffer this fate when the company cut contributions by half this week. The move was doubly significant because Aon is the UK's leading pensions consultant, advising other big companies.
But as lower employer contributions are equivalent to a pay cut, nobody should accept this lightly. Reducing pension benefits ought to be a last resort, taken only to save a business from going bust. Employees who find that cuts are unavoidable would be wise to try to make up the shortfall by increasing personal contributions, not least because stock markets are now exteremely low by historic standards.
There is little that the Government can do to stop companies from such action. However, with saving for retirement facing this new assault, now would be entirely the wrong time to cut tax relief on pension contributions, as some believe may happen in the Budget. Pension saving needs more support, not less.