Magazine article The Spectator

Is That a New Boom on the Far Horizon?

Magazine article The Spectator

Is That a New Boom on the Far Horizon?

Article excerpt

The real economy has taken only the first step towards recession but the housing market has already clocked up four successive quarters of negative growth. Indeed, house prices have now fallen further in 13 months, according to the Halifax, than they plunged in the whole three years of the 1989-91 crash. And like the rest of the economy, the housing scene is still deteriorating.

But for those who see the glass half full rather than half empty, from now on a series of signs will justify a degree of optimism in the housing market. We're probably not halfway into the property slump yet, but we should be very soon -- and from then on, the market will be coming out of recession rather than going in.

First, by some time in December, average UK home prices will have fallen back to their long-term trend line. They won't stop falling, of course, and the undershoot below that level could be as sharp as the overshoot was at last year's peak -- suggesting a slide of around 30 per cent by the time the market bottoms and turns back up towards that trend line.

Next, watch for a reduction in the annual rate of fall. The Halifax index showed a 1.3 per cent annual decline in March, nearly 9 per cent by June and more than 13 per cent for September. The fall for 2008 could be 16 per cent and will peak at nearly 20 per cent next spring. After that, prices will still be falling, but less steeply.

And as the rate of decline diminishes, there's a good chance that by late 2009 there will be a month when prices do not fall at all.

A single positive month may seem a rogue figure, but it will be the first rise since this April, and thus worth a headline to cheer the market.

Long before then there will have been more interest rate cuts. They alone will not turn the market, but they provide comfort -- and a stronger boost could come from the stamp-duty holiday announced in September. It hasn't had the slightest impact on the market so far -- but then why would it? Who would rush to save 1 per cent tax on purchasing a property likely to lose at least 10 per cent of its capital value within a year?

Come next summer, however, anyone buying a home for under £175,000 -- that was the national average price when the Chancellor announced the stamp-duty holiday, but the average will be significantly lower by next year, exempting even more properties -- will have good reason to make sure their deal goes through before the September deadline for the end of the holiday. Those estate agents still in business will have 'Hurry while tax-break lasts' signs in their windows.

Watch too next year for the bottom of the fall in monthly sales volumes. More deals will mean a more liquid housing market that attracts more buyers. And by next year, the nationalised banks should be lending again -- not at 2007 levels, as ministers want, but sufficient to meet increasing demand from buyers who will by then have had time to save the bigger deposits lenders require. The oversupply of new homes should, meanwhile, have disappeared.

By 2010, months when prices rise should become regular and the annual rate of decline will reduce to single digits for the first time since this summer, quickly turning to a modest year-on-year increase. Don't underestimate the value of such good news -- or at least an end to the constant flow of negative headlines. Every month, the big lenders, a handful of estate agents, their trade bodies, the Bank of England and the Land Registry each announce new lows in prices, lending or sales. …

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