Assetz® News - A new boom?

A new boom?

28th July 2008 |

The start and end of a month are always busy times for house price figures and today has proved no different. What has also turned out to be the same as usual was the news they contained.

Figures for the UK from property consultancy Hometrack revealed a 1.2 per cent drop in prices in July, while the Land Registry statistics for England and Wales in June showed a one per cent drop, with the north-east being the only region spared a fall. The Registry figures also showed London to be the fastest declining region with a monthly dip of 2.5 per cent, something that may reflect the disproportionate effect on the capital that the financial crisis has had.

For investors, it may seem like just another staging post in a long decline in prices, something that might make buying up property in the hope of appreciating value an unwise move.

One new projection might reinforce this view: A report by accountancy firm Deloitte has suggested that between now and 2010 prices will plummet as inflation squeezes household incomes, This is Money reports.

It stated: "We now expect UK house prices to fall by about a third by the end of 2010 with severe adverse effects on household spending and investment."

This kind of forecast is far from unique and may be placed at one end of a broad spectrum of predictions about the extent of price falls. In any case, what the Deloitte report did not do was to project what might happen after 2010.

Another report has. The National Housing Federation (NHF) has produced its own study suggesting that the market will continue to fall in the near term, but by far less than the Deloitte figures - dipping 4.4 per cent over the whole of 2008 and then by a more modest 2.1 per cent in 2009.

Beyond this, the body has suggested, there will be a significant about-turn. The lack of housebuilding will again be a driver of prices as supply fails to meet renewed demand and the result will be a new surge of prices, with annual inflation topping nine per cent and the average home in England in 2013 being 25 per cent more expensive than now at £275,000.

Commenting on this conclusion, NHF chief executive David Orr stated: "As soon as the economic outlook improves, house prices will resume their previous upward trajectory."

If the supply of new homes has anything to do with it - and it usually has - then the well-documented slowdown in building during recent months may indeed leave a major shortfall of housing. Of course, it is possible that other actions may help ameliorate such a situation, such as measures to free up more building land or bring empty homes back into use. More cautious lending and increased regulation of the mortgage sector could be other outcomes emerging in the wake of the credit crunch.

Furthermore, as the Deloitte report demonstrates, not all predictions for house price trends will be so optimistic. But the synopsis offered by the NHF may be an indication that for those who buy while prices are lower in this year and the next may reap substantial benefits when the current dip is behind us.

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