Assetz® News - 'DOUBLE DIP' IN HOUSING MARKET STILL UNLIKELY

'DOUBLE DIP' IN HOUSING MARKET STILL UNLIKELY

15th October 2009 |

Predictions of an imminent second dip in house prices are increasingly wide of the mark, says investment specialist Assetz, with several factors indicating sustained market strength over the next few years.

Forecasts of a 'double dip' in the housing market are largely centred on the possibility of a new wave of forced sales, resulting from interest rate rises. However, Assetz says this concern is misplaced, with the Bank of England base rate expected to remain low for the foreseeable future and property sales underpinned by a fundamental lack of supply.

Mortgage rates

Most forecasts are for a modest increase in base rates to about 3% between 2010 and 2011, with some commentators such as Capital Economics suggesting there will be no significant increase for the next five years. Mounting Government pressure on lenders to reduce margins will be the catalyst for maintaining affordability. This will keep payable mortgage rates suppressed for several years, says Assetz, rejecting claims that mortgages are due to become less affordable in the short-term.

Lenders will face even more pressure to bring in competitive deals once all the main house price indices start showing positive annual growth – something Assetz predicts will come to fruition as early as the end of 2009.

Home supply

The current imbalance between pent up demand for homes and available stock is so severe, says Assetz, that any increase in private seller supply is unlikely to have any significant impact. New home building is set to remain subdued for the foreseeable future, further reducing any prospect of the market being flooded with property and consequently driving up prices.

Unemployment

It has also been predicted that unemployment will surge and this will bring many more distressed sales to the market. It is becoming clear that the private sector is reaching the end of its job reduction phase and the question mark now remains more on the public sector – however job reductions here are not expected for at least a year, well after next year’s election, at a time the market is likely to be even stronger.

Stuart Law, Chief Executive of Assetz, said:

"Lenders are still resisting the market’s natural buoyancy with strict lending criteria ruling out thousands of sensible borrowers, but this will not continue forever. As soon as they are confident that the housing market is making a sustained recovery and the risks are diminishing, they will move to offer more attractive products to borrowers. I expect this to happen within three months of the major house price indices moving into positive growth, which means improving lending terms in the first quarter of next year.

"Base rates will eventually start to rise, probably in the second half of 2010, but the re-emergence of a competitive mortgage market will prevent the devastating increase in costs in real terms being predicted by many commentators.

“There is an expectation that recent house price strength will bring a flood of sellers to the market, almost overnight, but any increase is likely to be balanced out the large number of buyers now looking to make their move. Overall I expect it to be a steady and well balanced process, with the net supply of re-sale property increasing only in-line with gradual improvements in house building.”

-ENDS-

This is a press release by Assetz also available at http://press.assetz.co.uk/articles/5025.html. Alternatively, please see our full press release archive.