Borrowing might be getting cheaper, but we’re still not buying houses. The latest Halifax index reports that the house prices fell another 2.6% in November, topping October’s 2.4% drop. The average house now costs £163,605, which is 16.1% less than this time last year – the most dramatic drop in the index’s 25-year history. Houses are now back to July 2005 valuations – although that still means prices have more than doubled in the last decade…
It was the same old gloomy story from the Halifax today, who said that a combination of income worries and reluctant lenders is continuing to scare buyers away from the market. ‘The combination of high house prices in relation to earnings, constraints on householders' incomes and spending power and the decline in the availability of mortgage finance since the summer of 2007 has curbed housing demand,’ said the bank’s chief economist Martin Ellis today.
There is a silver lining however – at least if you’re a prospective buyer rather than a seller. Falling prices means more affordable houses: the house-price-to-earnings ratio has dropped to 4.56, its lowest level in five years. (Then again, the long-term average is 4.0, so this probably means prices still have further to fall…)
Ellis also suggested there were other reasons to be positive. Income pressures are starting to ease, he said, as falling fuel and food prices push down inflation (at least until the Government has to start printing money to finance its spending, and pushes it right back up again). And sales seem to be stabilising – according to the Bank of England, mortgage approvals have remained pretty much unchanged for the last four months.
He also points out that even now, prices are 124% higher than they were in 1998. Clearly an affordability ratio of 5.68 wasn’t sustainable in the long run, so this correction was always going to happen eventually – painful though it may be for anyone who’s bought a house in the last couple of years.
Just how painful probably depends on how successful the Government is in its attempts to bully the banks into lending more money. Sir James Crosby warned recently that net new lending could fall into negative territory next year unless something dramatic happens. And with an election looming, you can pretty much guarantee that the government won’t let that happen...
In today's bulletin:
Bank slashes rates by another 1%
Morrisons trounces Tesco with 8% sales hike
House prices plunge nearly 3% in November
Editor's blog: Heading for zero
Denise Kingsmill: the end for alpha males?