Future house price predictions are uncertain

Article source: www.guardian.co.uk

house price predictions

Faith in the state of the UK housing market is beginning to falter; even The Council for Mortgage Lenders said that the original predictions it made in May, about a drop in the housing market of only 7% had been underestimated and that future attempts to forecast house prices would be futile.

With the recent severe downturn in the worldwide financial markets, the bank run on Northern Rock in January of this year, the impending takeover of HBOS by Lloyds TSB, the collapse of Lehman Brothers, the mass withdrawal of mortgage products, predictions about the future availability and cost of mortgage products and how this will effect consumer sentiment can not be made certain.

The problems of the last 2 weeks have lead to a sharp rise in the LIBOR (Inter Bank Lending Rate). This, together with other problems in the financial markets means that future accurate forecasting predictions are even more unlikely. The surge in the LIBOR rate has had a knock on effect on the housing market with a rise in lending rates and a reduction in the number of mortgage products available.

The last house pricing predictions review in May by the CML was based on the SLS (Special Liquidity Scheme) having a very positive effect on the housing market by bringing in some much needed liquidity into what has recently been a very volatile banking system.

This has clearly not happened and we have indeed to date, as has been very widely reported in the media, seen a huge drop in the average house price of over 11% from the high of August 2007 last year; indeed the Halifax house price index shows a drop in house prices of over 13% from the same time last year. The Council added that any recovery was unlikely before 2010, following the general consensus.

The CML commented that there were signs of a modest improvement in the later part of the summer evidenced by a fall in lending rates for the lower risk consumer end of the market. This has however been compounded by the recent activity in the world wide financial markets and the surge in the LIBOR (inter bank lending rate) rate.

Confidence in the housing market has plummeted drastically since the start of the year with many experts in the City of London being caught out by the true extent of the problem.

In the later part of last year many predictions saw, price wise, a flat market, some say a modest rise, while a few of the forecasters envisaged a fall of up to 5%. Judging by the recent reports, especially the Halifax house price index, as quoted above, you can see how wrong they were.

With the Chief executive of Halifax and the Head of Nationwide Building Society both predicting drops in house prices of 20% or over during 2008 and 2009; both bosses do not realistically expect house prices to recover until 2010. Others are extremely pessimistic and say that the total drop in the housing prices will be between 30 and 35 percent with a clear recovery expected not earlier than late 2010 or early 2011.

Figures released this week show the volume home sales have reached their lowest level since August 1959; the true extent of the problem is now becoming clear.