Housing Faces prolonged bear market.

Spartacus_Mills

http://www.telegraph.co.uk/finance/economics/houseprices/7557222/UK-house-prices-face-prolonged-bear-market.html

British property prices benefited from a 25-year bull market since the 1980s, pushed up by low inflation and real interest rates, and the influx of millions of younger less well-off buyers who were suddenly able to get hold of mortgages, according to Lombard Street Research. But the organisation has given warning that homeowners must prepare for what could be a similarly long period in which economic forces work in the opposite direction.

The warning, from LSR's senior economist, Jamie Dannhauser, will cause particular concern, since it comes amid hopes that having slumped by around a fifth since the peak of the bubble, the housing market has now recovered.

However, Mr Dannhauser said that although house prices may continue to rise for some months, buoyed by short-term factors such as low interest rates and thin trading, the impact of the credit crunch may mean that the long-term direction of the market could take a turn for the worse.

He said that although the past 25 years had been punctuated by two housing crashes, the long-term trend for house prices had been
overwhelmingly positive.

"There was a big 25-year adjustment that came through three factors, which are one off shocks – inflation, real interest rates and credit availability," he said. "The real story now is credit, and more specifically what is happening in the mortgage market. For people who are bullish on housing as a medium term investment, that is a big question. It seems highly likely that given this banking shock there's been a step change in availability of credit.

"My medium term view now is that real house prices over the next three to five years will be flat at best. But it's quite conceivable that the equilibrium level of real house prices of 06/07 will not be reached again."
This implies that although nominal house prices may once again shoot through the levels they hit at the peak, the price when adjusted for inflation and the cycle may never again attain such a level.

The warning came as LSR said that its housing affordability indicator, in conjunction with The Daily Telegraph, showed that house prices became marginally more expensive in the final quarter of 2009. The indicator, in which 100 points represents the average affordability level since the early 1960s and a higher figure means prices are undervalued, dropped from 118.6 points to 118.4 points, meaning homes became slightly more overpriced. The indicator compares house prices to families' incomes and mortgage payments, and was one of the most reliable yardsticks in the run-up to the recent slump.

Affordability started to deteriorate for the first time in the third quarter of 2009, as house prices began to pick up enough to compensate for the fall in mortgage rates. Although prices rose by more than most economists expected last year, Mr Dannhauser warned that this was partly a function of the fact that so few people were putting their homes on the market.
"One reason prices have bounced back is because the volumes have been so thin. The effective level of housing demand is still way down on previous levels – particularly at the first-time buyer level."

In the Budget last month the Government pledged to exclude first-time buyers from stamp duty up to a level of £250,000, in a move which is intended to draw more buyers into the market.

Not much to say about this. I think housing will plateau over the next year or so while the economy settles down to the new government but I am not sure their pessimism is right if they are talking for a generation.

Emy1501

We saw the top of the market in real terms based on conventional lending back in 2004-2005. We will not see the lax credit market again in our life time. Therefore unlikely house prices are going to do anything in real terms in the next 25 years or so as people simply will not be able to get the credit to take it anywhere.

dopester

Yes. Kiss it goodbye, all these ideas of HPI marching onwards from here.

It's over. The storming rise in house values was all supported by massive credit expansion. The money has run out. Get it in to your heads please.

House prices are at preposterous levels and are going down. I'd prefer some sharp falls to get it over with. Shake out those who over-borrowed and allow those who were sensible to get an look in which would allow a quicker recovery, but otherwise it is a long bear market with falling values.

Harry_Powell

So speaks the oracle...

Jonbvn

Harry_Powell wrote: »

So speaks the oracle...

You have to give them 10/10 for the surety of their views. However, such predictions are like *ssholes.....;)

CLAPTON

It's unclear why anyone who is buying a property to make a home should be unduly concerned about house prices stablising in REAL terms (although may go up with inflation)

One might have thought this is a cause of some rejoicing rather than gloom.

What exactly is the problem?

StevieJ

The only use for predictions like these would be wrapping chips as they did in the old days.

StevieJ

Emy1501 wrote: »

We saw the top of the market in real terms based on conventional lending back in 2004-2005. We will not see the lax credit market again in our life time. Therefore unlikely house prices are going to do anything in real terms in the next 25 years or so as people simply will not be able to get the credit to take it anywhere.

How do you know what the economic landscape will be like in 5-10 or 25 years?

lostinrates

I dunno. I've noted some pretty remarkable sales recently. However I also know of some bigish value property holders in London selling some stuff now because they think the market will dip again. Its all good fun, its all a gamble...if its an investment not your home!

Emy1501

StevieJ wrote: »

How do you know what the economic landscape will be like in 5-10 or 25 years?

Does not matter. We have reached the max people can borrow based on reasonable lending practices. What we saw between 2005-2007 will not happen again our life time. Therefore prices can only now rise in line with wage inflation over the next 15-25 years. There will be booms and bust but we are pretty much at the top of the boom give or take 5-10% max.

CLAPTON

if ordinary inflation runs at say 4% and real wage growth a couple of points above that then wage inflation might well run at 6% per annum

over 25 years that amounts to 3.29%
so for a say £200k house now then in 25 years time if it just keeps in line with wage inflation is might then be £658,000