As the UK economy continues to suffer a backlash caused by the credit crunch and its own localised problems such as a weakened banking sector, political instability and concerns that government spending is out of control (expected to produce a deficit of £100 billion in 2008), the property market has suffered dramatically. The fall in the amount of finance available for mortgages as well as a buyers strike has affectively taken the fuel out of the market which has headed south as a consequence. So what next?
While markets have continued to fall we have seen false hope on a number of occasions which has led more and more investors to sit on the sidelines until we see
definite signs that the market has bottomed out. When this may be is anyone’s guess although it has not stopped forecasters and experts coming forward with their own opinions which include :-
Down, Down, Down
As the number of properties for sale continues to mount but the availability of finance continues to wane we are seeing prices edge lower and lower as sellers look to find a level of interest from those with finance to hand. However, with the UK economic policy now in tatters, government overspending now coming under major scrutiny and the promise of ‘jam tomorrow’, the property market is not a place to be at the moment.
Even the more conservative estimates are forecasting a fall in house prices of around 16% in 2008 followed by a further fall of around 5.5% in 2009 (courtesy of the Investment Property Forum 2nd quarter report 2008). The gloom mongers are suggesting that things may actually get worse before they get better and buyers will be able to delay any major investments until 2009 at the earliest when house prices will literally be rock bottom.
Green Shoots Of Life
While it seems that every day in the UK brings another downbeat report on the property sector, more costs added to the sales chain and a sharp reduction in buyers, the government must surely act to allay further fears of continuing falls. This is the thoughts of many who feel that the market is near the bottom and while the upturn will not happen over night there is the potential for prices to stabilise towards the end of 2008 and start to build for the future in 2009.
Many optimists are already pointing to the US bailout and the fact that this will free up the worldwide money markets by introducing substantial liquidity to a market which has been starved for some time. This should then see mortgages more available at competitive rates and slowly tempt more people back into the property market.
The Only Way Is Up
While the availability of finance has been one of the major reasons why the UK property market has fallen so far of late, there is an even greater threat to the markets – confidence. Moves in the US and the UK to a lesser extent have seen some form of confidence return to the market and while there is hope there does need to be solid action by the authorities to ensure the sector does not fall back again.
History has shown that while it is impossible to predict the turning point of any market it often happens when you least expect it. Do all the doom and gloom reports on the UK property sector suggest that the bottom may not be far away? Is it now time to catch the market before it bounces?
Trying to buy on the way down, in the expectation of a sharp bounce, is very difficult to time perfectly and can be compared to catching a falling knife before it hits the ground – i.e. very dangerous. While confidence is starting to ebb back into the markets after the US announced bail out we need to see financial liquidity improve before a sustained recovery can be considered.
Doom & Gloom?
While we have covered a number of the more popular theories out there with regards to the UK property market, the overall feeling is one of doom and gloom at the moment with the potential of some day light on the back of the move by the US authorities. While the property futures market has shown a small recovery over the last few weeks, meaning that people have improved their forecasts for the sector, there is still an awful long way to go.
When the government first indicated a stamp duty holiday to kick start the housing sector we saw the reaction of the small number of buyers in the market, they held off until the news was released. As it happens it was a watered down program which has had a limited impact on the property market as a whole. The introduction of HIPs has also caused concern, heaping more cost onto the overall expense of selling homes at a time when the market can least afford it.
The key to a sustained recovery in the UK property market is confidence in the system and the markets. While we are seeing signs that confidence is starting to improve it still appears to be very fragile at the moment with very little assistance being offered by the UK government. Once confidence returns then the economy should start moving again, freeing up money markets and increasing demand for property and mortgages.
There is no mistaking the fact that times are still very tough in the UK property market with many estate agents struggling to make any sales. However, as the upwards pressure on inflation continues to weaken (in essence the falling price of oil) we should see an opportunity for interest rates in the UK to fall over the next few months with the intention of kick starting the UK economy.
Confidence has been and always will be the key to a recovery in the UK property market and while there are signs that it is picking up, events such as the rescues of HBOS, Derbyshire Building Society, Cheshire Building Society and the ongoing problems at the Bradford and Bingley are not helpful.