Assetz® News - Rebound time?

Rebound time?

4th August 2008 |

A quick read of the news must be confusing for some people. The spread-betting industry has, the Financial Times reported today, concluded that by 2011 house prices across the UK will fall by 30 per cent, hardly good news for those looking to invest in property.

Yet for some, such a situation would not be a bad thing. Capital economics chief executive Roger Bootle, writing in the Daily Telegraph, has not only expressed opposition to the government and Bank of England taking action to bolster the mortgage market as this would - in his view - face the risk of failure as well as rewarding people who had undertaken "reckless borrowing"; he also suggested that in fact falling prices would be no bad thing, as they have gone too high and a correction would be the ideal solution to the government's quest to create more affordable housing.

Those facing negative equity or losses on their investments might beg to differ with Mr Bootle. But what may be more relevant than whether an analyst sees such trends as good or bad is the simple question of whether, a year after the credit crunch began, prices will soon start to turn for the better.

When reporting on the prediction of the 30 per cent price fall, the Financial Times noted the contrast with the forecast of the National Housing Federation last week. Its forecast saw prices continuing to drop through the rest of 2008 and 2009, before turning in 2010 and then more than cancelling out the recent losses with the return of high price inflation. This new boom, fuelled by a lack of supply caused by the large fall in the number of new homes being built, will be such that five years from now the average home in England will be £275,000, a 25 per cent increase.

A similar conclusion has been reached independently by the Centre for Economic and Business Research. It sees the recovery starting a little sooner - in 2009 - but suggested there will be a new boom with a 30 per cent increase between the start of this fresh surge and 2012. The reason, once again, will be the lack of new homes. That two organisations should come to such similar conclusions may indicate that investors do have a lot to look forward to after all.

Someone who has been as bold as to suggest we may already be at the bottom of the market is the chief executive of estate agency Winkworth Simon Agace. He said that a combination of lower asking prices and an increased ability of buyers to negotiate prices downwards meant there has already been a fall of 15 to 20 per cent, with some areas seeing more than that.

He concluded: "The transactional level may have just about reached the bottom, so things could soon be on the up."

This suggestion may or may not stand the test of time, but the optimism of Mr Agace, combined with the suggestions of how and when the next boom may start, could all be good reasons for investors to see more than a glimmer of light at the end of a tunnel.