House prices – it just gets worse
We noted in our article on property yesterday that at the peak of markets it is generally the more vulnerable that are affected when markets turn. We’ve included below some articles that seem to bear out our ‘top of the curve’ theory – we’re starkly reminded of the heady days just prior to the ‘Dot Com’ bust – with experts and analysts espousing rubbish in the face of common sense, and with consumers so desperate to ‘gear’ up with ‘Dot Com’ shares that they maxed out on credit cards loans.
Although a return to more ‘rational’ behaviour has hit the USA and Australia, it seems the UK is spiraling towards a housing calamity that will once again, hurt mainly those least able to afford it.
The Bank of England has already directly warned consumers that it will increase interest rates at least once more. And thus directly challenging the housing market prophets – note in the second article that even the lenders (Fionnuala Earley, Nationwide) are starting to inject words of caution into their statements.
From FirstRung
First time buyers increasingly desperate to get onto the first-rung now
Linden Homes [UK property developer] reports a 25% increase in the number of friends becoming joint property owners in a bid to get on the ladder.
Today’s generation of first time buyers accepts that pooling funds with friends is one of the only affordable routes into property ownership, according to Linden Homes.
The developer has seen a 25% increase in the proportion of first time buyers joining up to buy with friends or siblings over the last twelve months, with this group now making up almost one third of all first time buyer purchases.
With the average deposit required now at £23,967 according to Halifax, it is becoming more and more difficult for young people to save up for their first property in the conventional way, over the course of two or three years. Instead first time buyers, now on average aged 33, are viewing their first property purchase as a continuation of their flat sharing days, by buying jointly with a like-minded friend.
IT Managers Michael Adams, 29 and Jamie Orminston, 34 have recently clubbed together to buy a two-bedroom apartment at Linden’s Fusion development in Kingswood, Bristol. They met when working together a few years ago and when Jamie realised he could not afford to buy alone, he suggested to Steve that they put their money together to purchase the £146,470 apartment.
Still in the UK, Investment and Business News notes that lenders have reforecast prices upwards and blanked out any effects of the Central banks rate increase.
…. Just to emphasize the polarity of economic opinion on the housing market at the moment, the Nationwide [UK Bank and Mortgage lender] has upped its forecasts for house price inflation this year, from the 0 to 3 percent it predicated a few months ago to 5 percent.
Fionnuala Earley, Nationwide’s Group Economist, said: ‘In the face of deteriorating affordability, the housing market has been remarkably resilient in 2006. House purchase transactions reached boom levels during the winter and have remained above trend since. This pulled house price inflation up to 5.9% in July, almost double the 3% rate of growth at the end of 2005. The faster than expected recovery of the economy and strong labour market are important factors. On top of this is the apparent shift in demand for housing as an investment as tenant demand has increased both in the face of rising prices and increased immigration. Strong bonuses in the City will have helped, but so too will any change in attitudes to property investment as a supplement, or alternative, to traditional pensions.’
Ms Earley added: ‘The MPC’s decision to increase interest rates sent shock waves through the City but is unlikely to have the same effect on the housing market. Our initial view, in advance of the Inflation Report and MPC Minutes, is that this is a pre-emptive move which is likely to have only a modest impact.