THE UK housing market stands on the brink of a relapse that could send house prices tumbling over the coming months, it has been claimed.
New figures have revealed that house prices fell for the third successive month in June, the latest indication that the nascent housing market recovery has stalled. And a housing market expert yesterday warned that a fragile housing market could be upset by rising unemployment as the government makes cuts to the public sector.
The Scottish property market, however, is predicted to avoid the worst of any slump.
Paul Diggle, property economist at Capital Economics, said there were similarities between the market now and in the early 1990s, when prices fell 17 per cent over three years. With the economic outlook worse than at the low point of the early 1990s and the house price to earnings ratio suggesting house prices are too high, Mr Diggle said he expected a market relapse.
The ratio of house prices to earnings currently points to an overvaluing of property, meaning reduced earnings levels could create extra downward pressure on property values.
“There are a number of parallels between the 1990s experience and now that suggest that the current recovery could be reversed in the coming months,” said Mr Diggle.
“The problems in the UK labour market are not over, and the fragile position will be made worse by looming public sector employment cuts. The current fiscal squeeze makes the 1990s experience look mild by comparison.”
His comments came days after the Halifax house price index showed a 0.6 per cent drop last month that left the average UK home price 17 per cent below the pre-credit crunch peak.
Last year’s recovery was due largely to an imbalance of demand over supply that pushed asking prices upwards. But more homes have been put on the market in recent months, easing the pressure on prices. And the housing market is in a more precarious position than in 1992, Mr Diggle claimed, with mortgage affordability likely to be threatened by the impact of the fiscal squeeze on household incomes.
“A period of flat prices is the best that can be hoped for, but relapse is the most likely scenario,” he said.
Matthew Sinclair, director of Saint Property in Edinburgh, said: “The real concern is the increase in interest rates and the effect on mortgage repayments. We are already seeing the correlation between low interest rates and mortgage rates widen and those refinancing a fixed term mortgage or taking out a new mortgage now, unless they have significant equity in the property, are seeing their repayments increase significantly.”
The direction the property market takes this autumn could define the outlook for house prices over the next 18 months, Sinclair predicted.
“The property market is very fragile and we are seeing increasingly more sellers coming into the market, which is giving our clients, the buyers, a much wider choice.
At the moment the supply and demand curve is moving back in favour of the purchaser, which will just add to the pressures on the market.”
However Robert Carroll, solicitor and managing director of MOV8 Real Estate in Edinburgh, claimed the property market in Edinburgh and the Lothians could go against wider Scottish and UK property market trends.
He said: “While the market for first time buyer properties and second-hand modern-built properties remains quite tough, with prices quite a bit lower than at the peak in late 2007, good properties in good locations are still selling and prices are seeing an upward bounce, even when general UK and Scotland-wide market trends are in the opposite direction.”
He predicted that Edinburgh and the Lothians would out-perform the rest of the UK and Scotland in the coming months regardless of the wider economic climate.
“Historically and far more recently, it has seemed to operate as its own micro-economy”,
Tags: Housing Market, Jeff Salway, Matthew Sinclair, Saint Property, The Scotsman
