Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
The Darkening Clouds on the Stock Market S&P 500 Horizon - 2nd Jul 20
US Fourth Turning Reaches Boiling Point as America Bends its Knee - 2nd Jul 20
After 2nd Quarter Economic Carnage, the Quest for Philippine Recovery - 2nd Jul 20
Gold Completes Another Washout Rotation – Here We Go - 2nd Jul 20
Roosevelt 2.0 and ‘here, hold my beer' - 2nd Jul 20
U.S. Dollar: When Almost Everyone Is Bearish... - 1st Jul 20
Politicians Prepare New Money Drops as US Dollar Weakens - 1st Jul 20
Gold Stocks Still Undervalued - 1st Jul 20
High Premiums in Physical Gold Market: Scam or Supply Crisis? - 1st Jul 20
US Stock Markets Enter Parabolic Price Move - 1st Jul 20
In The Year 2025 If Fiat Currency Can Survive - 30th Jun 20
Gold Likes the IMF Predicting a Deeper Recession - 30th Jun 20
Silver Is Still Cheap For Now - 30th Jun 20
More Stock Market Selling Ahead - 30th Jun 20
Trending Ecommerce Sites in 2020 - 30th Jun 20
Stock Market S&P 500 Approaching the Precipice - 29th Jun 20
APPLE Tech Stock for Investing to Profit from the Machine Learning Mega trend - 29th Jun 20
Student / Gamer Custom System Build June 2020 Proving Impossible - Overclockers UK - 29th Jun 20
US Dollar with Ney and Gann Angles - 29th Jun 20
Europe's Banking Sector: When (and Why) the Rout Really Began - 29th Jun 20
Will People Accept Rampant Inflation? Hell, No! - 29th Jun 20
Gold & Silver Begin The Move To New All-Time Highs - 29th Jun 20
US Stock Market Enters Parabolic Price Move – Be Prepared - 29th Jun 20
Meet BlackRock, the New Great Vampire Squid - 28th Jun 20
Stock Market S&P 500 Approaching a Defining Moment - 28th Jun 20
U.S. Long Bond: Let's Review the "Upward Point of Exhaustion" - 27th Jun 20
Gold, Copper and Silver are Must-own Metals - 27th Jun 20
Why People Have Always Held Gold - 27th Jun 20
Crude Oil Price Meets Key Resistance - 27th Jun 20
INTEL x86 Chip Giant Stock Targets Artificial Intelligence and Quantum Computing for 2020's Growth - 25th Jun 20
Gold’s Long-term Turning Point is Here - 25th Jun 20
Hainan’s ASEAN Future and Dark Clouds Over Hong Kong - 25th Jun 20
Silver Price Trend Analysis - 24th Jun 20
A Stealth Stocks Double Dip or Bear Market Has Started - 24th Jun 20
Trillion-dollar US infrastructure plan will draw in plenty of metal - 24th Jun 20
WARNING: The U.S. Banking System ISN’T as Strong as Advertised - 24th Jun 20
All That Glitters When the World Jitters is Probably Gold - 24th Jun 20
Making Sense of Crude Oil Price Narrow Trading Range - 23rd Jun 20
Elon Musk Mocks Nikola Motors as “Dumb.” Is He Right? - 23rd Jun 20
MICROSOFT Transforming from PC Software to Cloud Services AI, Deep Learning Giant - 23rd Jun 20
Stock Market Decline Resumes - 22nd Jun 20
Excellent Silver Seasonal Buying Opportunity Lies Directly Ahead - 22nd Jun 20
Where is the US Dollar trend headed ? - 22nd Jun 20
Most Shoppers have Stopped Following Supermarket Arrows, is Coughing the New Racism? - 22nd Jun 20

Market Oracle FREE Newsletter

AI Stocks 2020-2035 15 Year Trend Forecast

UK House Prices on Target for 15% Fall Despite Interest Rate Cuts

Housing-Market / UK Housing Feb 08, 2008 - 02:20 AM GMT

By: Nadeem_Walayat

Housing-Market Best Financial Markets Analysis ArticleUK House prices fell by £4,000 (2.1%) in January 2008 (Halifax), the average price falling to £191,275, down £9,806 (4.8%) from the August 2007 peak of £201,081. The Market Oracle forecast as of August 2007 is for a fall in average house prices of 15% over two years to August 2009. UK interest rates were cut yesterday by a further 0.25% taking interest rates down by 0.5% from its peak of 5.75% (Forecast December 2006), the cuts to date and further anticipated cuts during 2008 are being mistakenly taken by many market commentators, economists and large mortgage banks such as the Halifax to imply that UK House price inflation will be neutral during 2008. Therefore this article illustrates why house price inflation will start going negative by April 2008.


UK house price forecast 2008

Why UK House Price Inflation will Go Negative Starting April 2008

The monthly average UK house prices graph, which is derived from data from Britain's biggest mortgage bank (the Halifax), clearly shows the peak in UK house prices in August 2007 at a price of 201,081. After which house prices have been in the process of tracking the two year forecast lower towards a target of £170,000 by August 2009 (15% drop). The decline to date has taken house prices down to £191,275 by January 2008. The November article explained that buy to let investors selling will ensure a further sharp deterioration in the UK housing market during the quarter April 2008 to June 2008. Therefore the immediate trend can be expected to continue lower during that quarter. Even if the rate of house price declines slow to a crawl from the present rate of £2000 per month to just £500, that would still suggest a further fall of £2000 by the release of the May 2008 statistics, which would equate to an average UK house price of £189,275. or a fall of £11,800 (6%) from the August 2007 peak.

Presently UK annualised house prices inflation stands at 3.9% despite a fall in house prices of £9,800. However what many analysts fail to realise is that the house prices for the months of April through June 2007, i.e. last year, are significantly above the CURRENT average house price, therefore even if house prices do not fall, i.e. stabalise at £191,275, UK house prices will still go negative in April 2008, as the table below demonstrates.

Annualised UK House Price Inflation 2008 Stabalised house prices House prices fall by £500 per month
March 2008
1.1%
0.6%
April 2008
-1%
-1.8%
May 2008
-3.5%
-4.5%
June 2008
-4%
-5.3%
Dec 2008
-1.5%
-4.4%

 

The actual trend expectation as per November 2007, is for a sharp drop in the quarter April to June 2008 due to the impact of the capital gains tax rule changes on the buy to let sector from April 08 onwards. Following which house prices may stabalise at lower levels for some months before the next series of declines takes place as the UK economy slows going into 2009. This trend would imply that the UK will end 2008 with a house price decline of about 9% from the August 2007 highs and at annualised house price deflation of as much as 7% during the summer, which would be expected to reduce to under 5% by the end of 2008.

UK inflation, interest rate forecast 2008

Just as rising house prices made UK home owners feel more wealthy, with equity withdrawals for consumption all the rage and many buying second properties as buy to let investments. First time buyers eager to jumping onto the housing ladder at multiples of X7 under lax lending regimes . Similarly house price declines are now having a far more deflationary effect on the the UK housing market and the UK consumer than the inflationary impact of cuts in UK interest rates. Even if UK interest rates are cut towards my forecasts for 2008 of 5% (Sept 07) revised to 4.75% (Jan 08). The effect of these cuts on mortgage interest payments would amount to an estimated reduction of £108 per month on an average mortgage of £130,000. This is if the mortgage lenders pass on all of the rate cuts, which as we have seen does not always happen. Against this, average house prices are presently falling at a much faster rate of £2000 per month. With the anticipated average rate of decline by September 2008 being estimated at £1200 per month, against an forecast interest rate of 4.75% resulting in a £108 monthly saving. Thus still completely negating any perceived positive impact of interest rate cuts and hence the housing bear market will increasingly impact the consumer and the UK economy going into 2009.

A further negative on the interest rate front, is the impact on the estimated 1.4 million home owners on low fixed rate mortgages taken out during the height of the housing boom, well before the credit crunch started to bite that will see their mortgages reset to much higher interest rates. Current fixed mortgage products carry much tighter lending criteria and therefore many mortgage resets will not be able to secure any of the more favorable interest rates and be stuck on high standard variable interest rates as cash starved banks attempt to replenish their reserves and make further allowances for bad debts.

Repossessions and Affordability

The UK housing market remains at historically high unaffordability levels as illustrated by the Market Oracle UK House Price Affordability Index. Affordability concerns will continue to come to the fore as the expectations of capital appreciation diminishes and the number of repossessions continues to escalate as record amounts of debt put households under increasing pressure. An estimated 30,000 properties were repossessed during 2007, up 33% on 2006 with 2008 at this point expected to increase by at least 50% to 45,000 repossessions. However as during the previous housing bust, the official statistics tend to both under estimate the actual number of repossessions and also tend to err on the side of caution in forward forecasts, therefore the current housing bust could see repossessions during 2008 far exceed the estimate of 45,000 and may even break the record of 75,000 repossessions at the height of the last housing bust.

In conclusion - The UK housing market price trend is on target towards a 15% fall in nominal terms by August 2009. This would equate to a real terms fall of more than 20% and could push the UK into recession during late 2009.

By Nadeem Walayat

Copyright © 2005-08 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading, analysing and forecasting the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 120 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Daniel Hughes
18 Feb 08, 06:31
UK House prices

Dear Sirs

My home was purchased in June 2006 for £160,000 would the value at present trends have gone up or would it still be worth the same. I dont understand intrest rates I hope you can help me.

Thanks DKH


Noel Squibb
18 Feb 08, 16:34
Halifax house price survey ?

Nadeem Walayat said:-

"UK House prices fell by £4,000 (2.1%) in January 2008 (Halifax), the average price falling to £191,275, down £9,806 (4.8%) from the August 2007 peak of £201,081".

As this did not appear to be picked up by the UK media, I checked the Halifax website and got :-

"House prices were unchanged in January. Prices in the three months to January were 1.0% lower than in the previous quarter. Over the past year, the average price of a home in the UK has increased by £7,628 to £197,244."

Report dated January 2008 and released at 08:00 05.02.08

Is there an explanation for this?


Nadeem_Walayat
18 Feb 08, 17:15
Halifax House Price Data

Halifax house price data

http://www.hbosplc.com/economy/includes/08_02_08_historic_data.xls

Sheet - AllMon(NSA)

All Monthly - None Seasonally 'Manipulated', Sorry I mean 'Adjusted'

January 2008 - 191,275


Oliver
09 Mar 11, 08:20
uk house price rises after January 2008.

I'm doing some research on the factors that led to the decline in the rate of house price rises after January 2008. can anyone help?

Thanks


Post Comment

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

6 Critical Money Making Rules